<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1997
REGISTRATION NO. 333-25755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
AMC ENTERTAINMENT INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7832 43-1304369
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification
Number)
</TABLE>
106 WEST 14TH STREET
KANSAS CITY, MISSOURI 64105
(816) 221-4000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
----------------
PETER C. BROWN
PRESIDENT AND CHIEF FINANCIAL OFFICER
AMC ENTERTAINMENT INC.
106 WEST 14TH STREET, SUITE 1700
KANSAS CITY, MISSOURI 64105
(816) 221-4000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
----------------
WITH A COPY TO:
RAYMOND F. BEAGLE, JR.
LATHROP & GAGE L.C.
2345 GRAND AVENUE, SUITE 2800
KANSAS CITY, MISSOURI 64108-2684
(816) 292-2000
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AMC ENTERTAINMENT INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF
REGULATION S-K SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION
STATEMENT ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
<C> <C> <S> <C>
A. Information about the Transaction
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Front of Registration Statement; Outside Front
Cover of Proxy Information Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Table of Contents;
Incorporation by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information............................ Summary; Selected Financial Data: Risk Factors
4. Terms of the Transaction.......................... The Merger; Information about the
Company--Description of AMCE Capital Stock;
Comparison of Rights of Holders of AMCE Stock and
DI Stock
5. Pro Forma Financial Information................... Index to Financial Statements
6. Material Contacts with the Company Being
Acquired......................................... The Merger--Background of the Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.... Not Applicable
8. Interests of the Named Experts and Counsel........ Experts; Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Comparison of Rights of Holders of AMCE Stock and
DI Stock--The Board of Directors
B. Information about the Registrant
10. Information with Respect to
S-3 Registrants.................................. Not Applicable
11. Incorporation of Certain Information by
Reference........................................ Not Applicable
</TABLE>
i
<PAGE>
AMC ENTERTAINMENT INC.
CROSS-REFERENCE SHEET (CONTINUED)
PURSUANT TO ITEM 501(B) OF
REGULATION S-K SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 REGISTRATION
STATEMENT ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
- ------------------------------------------------------------------------ --------------------------------------------------
<C> <C> <S> <C>
12. Information with Respect to S-2 or S-3
Registrants...................................... Summary; Information about the Company--Business
of the Company-- Dividends and Price Range of
Common Stock--Selected Financial Data--
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Index to
Financial Statements
13. Incorporation of Certain Information by
Reference........................................ Incorporation by Reference
14. Information with Respect to Registrants Other Than
S-2 or S-3 Registrants........................... Not Applicable
C. Information about the Company Being Acquired
15. Information with Respect to
S-3 Companies.................................... Not Applicable
16. Information with Respect to S-2 and S-3
Companies........................................ Not Applicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies............................. Information about DI--Business--Selected Financial
Data--Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Index to Financial Statements
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations
are to be Solicited.............................. The AMCE Special Meeting; The Merger-- Dissenters'
Rights--Interests of Certain Persons in the
Merger; Information about the Company--Management
of the Company--Certain Transactions; Information
about DI--Security Ownership; DI Special Meeting
19. Information if Proxies, Consents or Authorizations
are not to be Solicited, or in an Exchange
Offer............................................ Not Applicable
</TABLE>
ii
<PAGE>
AMC ENTERTAINMENT INC.
106 WEST 14TH STREET
KANSAS CITY, MISSOURI 64105
June 25, 1997
To Our Stockholders:
On behalf of the Board of Directors, I cordially invite you to attend a
special meeting of the stockholders (the "AMCE Special Meeting") of AMC
Entertainment Inc. ("AMCE" or the "Company") to be held at 2:00 p.m., local time
on July 29, 1997, at the offices of Lathrop & Gage L.C., 2345 Grand Avenue, 24th
Floor, Kansas City, Missouri.
At the AMCE Special Meeting, you will be asked to approve and adopt an
Agreement and Plan of Merger and Reorganization dated as of March 31, 1997 (the
"Merger Agreement") by and between AMCE and Durwood, Inc. ("DI"), pursuant to
which DI will be merged into AMCE, with AMCE remaining as the surviving
corporation (the "Merger"). DI, which is wholly owned by the Durwood family, is
the majority stockholder of AMCE, owning 2,641,951, or 38.8%, of the outstanding
shares of AMCE Common Stock, and 11,157,000, or 100%, of the outstanding shares
of AMCE Class B Stock. In the aggregate, these shares represent 96.5% of the
combined voting power of AMCE's outstanding shares of voting stock as of May 19,
1997.
The Merger was proposed to AMCE by the Durwood family in connection with our
efforts to dissolve DI and a family partnership, American Associated Enterprises
("AAE"), that owns shares of DI Class B Stock, so that we may hold our interests
in AMCE directly in the form of a marketable security instead of indirectly
through DI and AAE. The accompanying notice and Proxy Statement describe the
effect that the Merger would have on my family's interest in AMCE.
SHARES OF AMCE STOCK HELD BY STOCKHOLDERS OTHER THAN DI WILL REMAIN ISSUED
AND OUTSTANDING AND WILL NOT BE EXCHANGED IN THE MERGER. HOLDERS OF AMCE STOCK
SHOULD NOT SURRENDER THEIR SHARES IN CONNECTION WITH THE MERGER.
Pursuant to the Merger Agreement and a settlement of a stockholders'
derivative suit in which my son, Mr. Edward D. Durwood, and I are defendants
and/or agreements with AMCE, I and members of my family have agreed to seek the
Merger and to sell at least 3,000,000 shares of AMCE Common Stock within one
year after the closing of the Merger in a public secondary offering (which will
be made only by means of a prospectus).
The AMCE Board of Directors believes that the Merger, which would have no
tax effect on AMCE or its public stockholders, would be beneficial to AMCE and
its stockholders because, among other reasons, it would increase the voting
interest of the stockholders who are not members of my family and simplify the
corporate structure of AMCE. In addition, the sale by members of my family of
AMCE shares in the public secondary offering contemplated to occur following the
Merger will increase the public "float" and liquidity of the AMCE Common Stock
and, as a result, may reduce the volatility of daily stock price changes, narrow
the bid/asked spread and increase the interest of institutional investors in the
AMCE Common Stock. These effects, over time, may enhance shareholder value.
If the Merger is consummated, based on shares outstanding as of May 19,
1997, unaffiliated stockholders (i.e., persons other than members of the Durwood
family) will own approximately 4.2 million, or 32.3%, of AMCE's outstanding
shares of Common Stock, and their voting interest in AMCE will have increased
from 3.5% to 6.6%. If, after the Merger, the secondary offering is consummated,
unaffiliated stockholders will own approximately 7.2 million, or 53.4%, of
AMCE's outstanding shares of Common Stock, based on shares outstanding as of May
19, 1997, and their voting interest in AMCE will have increased from 6.6% after
the Merger to 12.3% after the secondary offering. The enclosed Proxy Statement
describes the effect of these transactions on the Durwood family's interest in
AMCE and also
1
<PAGE>
describes how the voting interest of unaffiliated stockholders in AMCE will
increase further if shares of AMCE's $1.75 Cumulative Convertible Preferred
Stock are fully converted.
The accompanying Proxy Statement also describes provisions of an agreement
between me and my children that could result in post-Merger adjustments pursuant
to which I would deliver additional shares to them. Generally, I have agreed to
pay them up to $20 million in shares of AMCE Common Stock if the price they
receive for the 2.5 million shares to be sold by them in the secondary offering
is less than $18 per share. I have also agreed to indemnify them from any
unexpected gift tax and other matters related to the Merger and secondary
offering.
Upon the recommendation of a special committee of the Board of Directors
consisting of Messrs. Charles J. Egan, Jr. and Paul E. Vardeman (the "Special
Committee"), our new outside directors, Messrs. William T. Grant, II and John P.
Mascotte, and the full AMCE Board of Directors has unanimously approved the
Agreement and Plan of Merger and Reorganization and is requesting your approval.
The Board of Directors and the Special Committee believe that the Merger is
fair and in the best interest of AMCE and its unaffiliated stockholders and
recommend that you vote FOR the proposal to approve the Merger Agreement.
Furman Selz LLC, the Special Committee's financial advisor, has rendered an
opinion to the Special Committee to the effect that, as of the date of its
opinion, the consideration to be paid by AMCE is fair, from a financial point of
view, to AMCE.
Details of the Merger and other important information concerning AMCE in the
Merger and DI appear in the accompanying Notice and Proxy Statement. Please give
this material your careful attention. If you have questions concerning the AMCE
Special Meeting, please feel free to contact D.F. King & Co., Inc. our proxy
solicitors, at (800) 290-6431.
A CONDITION TO THE MERGER IS THAT THE MERGER AGREEMENT BE APPROVED BY THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF SHARES OF AMCE COMMON STOCK
PRESENT OR REPRESENTED BY PROXY AND VOTING AT THE SPECIAL MEETING, OTHER THAN
DI, MEMBERS OF MY FAMILY AND DIRECTORS AND OFFICERS OF AMCE. THEREFORE, YOUR
VOTE IS IMPORTANT. Whether or not you plan to attend the AMCE Special Meeting,
please complete, sign and date the accompanying proxy card and return it in the
enclosed postage prepaid envelope. If you attend the AMCE Special Meeting, you
may vote in person even if you have previously returned your proxy card. Your
prompt cooperation will be greatly appreciated.
I am gratified by your continued support of the Company.
Sincerely,
Stanley H. Durwood
Chairman and Chief Executive Officer
Enclosures
- --------------------------------------------------------------------------------
NO MATTER HOW MANY OR FEW SHARES YOU OWN, YOUR VOTE IS IMPORTANT. PLEASE SIGN,
DATE AND MAIL THE ENCLOSED PROXY CARD TODAY!
2
<PAGE>
AMC ENTERTAINMENT INC.
106 WEST 14TH STREET
KANSAS CITY, MISSOURI 64105
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JULY 29, 1997
To the Stockholders of AMC ENTERTAINMENT INC.
Notice is hereby given that a special meeting of stockholders of AMC
Entertainment Inc., a Delaware corporation ("AMCE" or the "Company"), will be
held at the offices of Lathrop & Gage L.C., 2345 Grand Avenue, 24th Floor,
Kansas City, Missouri, on July 29, 1997, at 2:00 p.m., local time for the
following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger and Reorganization dated March 31, 1997 by and between AMCE
and Durwood, Inc. ("DI"), pursuant to which DI will be merged into AMCE, with
AMCE remaining as the surviving corporation (the "Merger"). In the Merger, (i)
shares of AMCE Common Stock and AMCE $1.75 Cumulative Convertible Preferred
Stock held by AMCE stockholders other than DI will remain issued and outstanding
and will not be exchanged, (ii) each share of AMCE Common Stock and AMCE Class B
Stock held by DI will be canceled, (iii) each share of DI Class A Stock
presently held by Mr. Stanley H. Durwood, the trust created pursuant to the
Revocable Trust Agreement of Mr. Stanley H. Durwood dated August 14, 1989, as
amended (the "1989 Trust"), or the 1992 Durwood, Inc. Voting Trust dated
December 12, 1992 (the "1992 Trust") will be converted into and exchanged for
32.142857 shares of AMCE Class B Stock, so that the 119,500 shares of DI Class A
Stock presently held by Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust
will be convertible into and exchangeable for an aggregate of 3,841,071 shares
of AMCE Class B Stock, (iv) each share of DI Class A Stock presently held by or
for the benefit of persons other than Mr. Stanley H. Durwood, the 1989 Trust or
the 1992 Trust will be converted into and exchanged for 32.142857 shares of AMCE
Common Stock, so that the 500 shares of DI Class A Stock presently held by
persons other than Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust will
be convertible into and exchangeable for an aggregate of 16,071 shares of AMCE
Common Stock, (v) each share of DI Class B Stock to be held by Mr. Stanley H.
Durwood, the 1989 Trust or the 1992 Trust will be converted into and exchanged
for 243.767528 shares of AMCE Class B Stock, so that the 4,818.4664 shares of DI
Class B Stock to be held by Mr. Stanley H. Durwood, the 1989 Trust or the 1992
Trust will be convertible into and exchangeable for an aggregate of 1,174,586
shares of AMCE Class B Stock, and (vi) each share of DI Class B Stock to be held
by the children of Mr. Stanley H. Durwood will be converted into and exchanged
for 243.767341 shares of AMCE Common Stock, so that the 35,965.5336 shares of DI
Class B Stock to be held by the children of Mr. Stanley H. Durwood will be
convertible into and exchangeable for an aggregate of 8,767,223 shares of AMCE
Common Stock, all as more fully described in the accompanying Proxy Statement;
and
2. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
DI, which is wholly owned by the Durwood family, is the majority stockholder
of AMCE, owning 2,641,951, or 38.8%, of the outstanding shares of AMCE Common
Stock as of May 19, 1997, and 11,157,000, or 100%, of the outstanding shares of
AMCE Class B Stock as of such date.
Holders of AMCE Common Stock and Class B Stock at the close of business on
June 19, 1997, are entitled to notice of and to vote at the special meeting, or
any adjournment or adjournments thereof. A complete list of such stockholders
will be open to the examination of any stockholder at AMCE's principal executive
offices at 106 West 14th Street, Kansas City, Missouri 64105, for a period of
ten
3
<PAGE>
(10) days prior to the meeting. The meeting may be adjourned from time to time
without notice other than by announcement at the meeting.
A CONDITION TO THE MERGER IS THAT THE MERGER AGREEMENT BE APPROVED BY THE
AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF SHARES OF AMCE COMMON STOCK
PRESENT OR REPRESENTED BY PROXY AND VOTING AT THE SPECIAL MEETING, OTHER THAN
DI, MEMBERS OF THE DURWOOD FAMILY AND DIRECTORS AND OFFICERS OF AMCE. THEREFORE,
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF
SHARES YOU HOLD. WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING IN PERSON,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. EACH PROXY GRANTED MAY BE REVOKED BY THE
STOCKHOLDER APPOINTING SUCH PROXY AT ANY TIME BEFORE IT IS VOTED. IF YOU RECEIVE
MORE THAN ONE PROXY CARD BECAUSE YOUR SHARES ARE REGISTERED IN DIFFERENT NAMES
OR ADDRESSES, EACH SUCH PROXY CARD SHOULD BE SIGNED AND RETURNED TO ASSURE THAT
ALL YOUR SHARES WILL BE VOTED.
The Notice, the accompanying Proxy Statement and the Proxy enclosed herewith
were sent to you by order of the Board of Directors of AMCE.
Nancy L. Gallagher
Vice President and Secretary
Kansas City, Missouri
June 25, 1997
4
<PAGE>
DURWOOD, INC.
106 WEST 14TH STREET
KANSAS CITY, MISSOURI 64105
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 29, 1997
To the Shareholders of Durwood, Inc.:
A special meeting of the shareholders of Durwood, Inc. ("DI") will be held
at the corporate headquarters of DI, 106 West 14th Street, Kansas City, Missouri
on July 29, 1997, at 1:00 p.m. local time to consider and vote upon a proposal
to approve and adopt an Agreement and Plan of Merger and Reorganization dated
March 31, 1997 by and between AMC Entertainment Inc. ("AMCE" or the "Company")
and DI, pursuant to which DI will be merged into AMCE, with AMCE remaining as
the surviving corporation (the "Merger").
In the Merger, (i) shares of AMCE Common Stock and AMCE $1.75 Cumulative
Convertible Preferred Stock held by AMCE stockholders other than DI will remain
issued and outstanding and will not be exchanged, (ii) each share of AMCE Common
Stock and AMCE Class B Stock held by DI will be canceled, (iii) each share of DI
Class A Stock presently held by Mr. Stanley H. Durwood, the trust created
pursuant to the Revocable Trust Agreement of Mr. Stanley H. Durwood dated August
14, 1989, as amended (the "1989 Trust"), or the 1992 Durwood, Inc. Voting Trust
dated December 12, 1992 (the "1992 Trust") will be converted into and exchanged
for 32.142857 shares of AMCE Class B Stock, so that the 119,500 shares of DI
Class A Stock presently held by Mr. Stanley H. Durwood, the 1989 Trust or the
1992 Trust will be convertible into and exchangeable for an aggregate of
3,841,071 shares of AMCE Class B Stock, (iv) each share of DI Class A Stock
presently held by or for the benefit of persons other than Mr. Stanley H.
Durwood, the 1989 Trust or the 1992 Trust will be converted into and exchanged
for 32.142857 shares of AMCE Common Stock, so that the 500 shares of DI Class A
Stock presently held by persons other than Mr. Stanley H. Durwood, the 1989
Trust and the 1992 Trust will be convertible into and exchangeable for an
aggregate of 16,071 shares of AMCE Common Stock, (v) each share of DI Class B
Stock to be held by Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust
will be converted into and exchanged for 243.767528 shares of AMCE Class B
Stock, so that the 4,818.4664 shares of DI Class B Stock to be held by Mr.
Stanley H. Durwood, the 1989 Trust or the 1992 Trust will be convertible into
and exchangeable for an aggregate of 1,174,586 shares of AMCE Class B Stock, and
(vi) each share of DI Class B Stock to be held by the children of Mr. Stanley H.
Durwood will be converted into and exchanged for 243.767341 shares of AMCE
Common Stock, so that the 35,965.5336 shares of DI Class B Stock to be held by
the children of Mr. Stanley H. Durwood will be convertible into and exchangeable
for an aggregate of 8,767,223 shares of AMCE Common Stock, all as more fully
described in the accompanying Information Statement/Prospectus.
The close of business on June 19, 1997, has been designated as the record
date for the determination of shareholders entitled to notice of and to vote at
the special meeting or any adjournment thereof.
By Order of the Board of Directors
Kansas City, Missouri
June 25, 1997
5
<PAGE>
SUBJECT TO COMPLETION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PRELIMINARY PROXY--INFORMATION STATEMENT/PROSPECTUS
DATED JUNE 17, 1997
AMC ENTERTAINMENT INC.
---------
PROXY STATEMENT
For Special Meeting of Stockholders of AMC Entertainment Inc.
to be Held on July 29, 1997,
and
INFORMATION STATEMENT
For Special Meeting of Shareholders of Durwood, Inc.
to be Held on July 29, 1997
and
PROSPECTUS FOR 8,783,294 SHARES OF AMC ENTERTAINMENT INC.
COMMON STOCK, PAR VALUE 66 2/3 CENTS PER SHARE, AND 5,015,657 SHARES OF AMC
ENTERTAINMENT INC. CLASS B STOCK, PAR VALUE 66 2/3 CENTS PER SHARE
-------------
This Proxy--Information Statement/Prospectus is being furnished as a proxy
statement to holders of Common Stock, par value 66 2/3 CENTS per share ("AMCE
Common Stock" or "Common Stock"), of AMC Entertainment Inc., a Delaware
corporation ("AMCE" or the "Company"), in connection with the solicitation of
proxies by the AMCE Board of Directors (the "AMCE Board") for use at a special
meeting of AMCE stockholders (the "AMCE Special Meeting") to be held on July 29,
1997, at the offices of Lathrop & Gage L.C., 2345 Grand Avenue, 24th Floor,
Kansas City, Missouri, commencing at 2:00 p.m., local time, and at any
adjournments, postponements or continuations thereof.
This Proxy--Information Statement/Prospectus is also being furnished as an
information statement and prospectus to holders of Class A Common Stock, par
value $100 per share ("DI Class A Stock"), and Class B Common Stock, par value
$100 per share ("DI Class B Stock"), of Durwood, Inc., a Missouri corporation
("DI"), in connection with a special meeting of DI shareholders (the "DI Special
Meeting"), to be held on July 29, 1997, at the corporate headquarters of DI, 106
West 14th Street, Kansas City, Missouri, commencing at 1:00 p.m., local time,
and at any adjournments, postponements or continuations thereof.
This Proxy--Information Statement/Prospectus relates to the proposed merger
of DI into AMCE (the "Merger"). DI, which is wholly owned by the Durwood family,
is the majority stockholder of AMCE, owning 2,641,951, or 38.8%, of the
outstanding shares of AMCE Common Stock as of May 19, 1997, and 11,157,000, or
100%, of the outstanding shares of AMCE Class B Stock as of such date. The
Merger will be effected pursuant to the terms of an Agreement and Plan of Merger
and Reorganization dated as of March 31, 1997, between AMCE and DI (the "Merger
Agreement"), pursuant to which DI will be merged into AMCE, with AMCE remaining
as the surviving corporation. SHARES OF AMCE STOCK HELD BY STOCKHOLDERS OTHER
THAN DI WILL REMAIN ISSUED AND OUTSTANDING AND WILL NOT BE EXCHANGED IN THE
MERGER. HOLDERS OF AMCE STOCK SHOULD NOT SURRENDER THEIR SHARES IN CONNECTION
WITH THE MERGER.
Immediately prior to the Merger, DI will convert 6,141,343 shares of AMCE
Class B Stock into shares of AMCE Common Stock, so that at the Effective Time
(as defined herein) of the Merger, DI will own 5,015,657 shares of AMCE Class B
Stock and 8,783,294 shares of AMCE Common Stock. In the Merger, (i) each share
of AMCE Common Stock and AMCE Class B Stock held by DI will be canceled, (ii)
each share of DI Class A Stock presently held by Mr. Stanley H. Durwood, the
trust created pursuant to the Revocable Trust Agreement of Mr. Stanley H.
Durwood dated August 14, 1989, as amended (the "1989 Trust"), or the 1992
Durwood, Inc. Voting Trust dated December 12, 1992 (the "1992 Trust") will be
converted into and exchanged for 32.142857 shares of AMCE's Class B Stock, par
value 66 2/3 CENTS per share ("AMCE Class B Stock" or "Class B Stock"), so that
the 119,500 shares of DI Class A Stock presently held by Mr. Stanley H. Durwood,
the 1989 Trust or the 1992 Trust will be convertible into and exchangeable for
an aggregate of 3,841,071 shares of AMCE Class B Stock, (iii) each share of DI
Class A Stock presently held by or for the benefit of persons other than Mr.
Stanley H. Durwood, the 1989 Trust or the 1992 Trust will be converted into and
exchanged for 32.142857 shares of AMCE Common Stock, so that the 500
(CONTINUED ON NEXT PAGE)
SEE "RISK FACTORS" AT PAGE 22 FOR A DISCUSSION OF CERTAIN MATTERS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy--Information Statement/Prospectus is , 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
shares of DI Class A Stock presently held by persons other than Mr. Stanley H.
Durwood, the 1989 Trust or the 1992 Trust will be convertible into and
exchangeable for an aggregate of 16,071 shares of AMCE Common Stock, (iv) each
share of DI Class B Stock to be held by Mr. Stanley H. Durwood, the 1989 Trust
or the 1992 Trust will be converted into and exchanged for 243.767528 shares of
AMCE Class B Stock, so that the 4,818.4664 shares of DI Class B Stock to be held
by Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust will be convertible
into and exchangeable for an aggregate of 1,174,586 shares of AMCE Class B
Stock, and (v) each share of DI Class B Stock to be held by the children of Mr.
Stanley H. Durwood will be converted into and exchanged for 243.767341 shares of
AMCE Common Stock, so that the 35,965.5336 shares of DI Class B Stock to be held
by the children of Mr. Stanley H. Durwood will be convertible into and
exchangeable for an aggregate of 8,767,223 shares of AMCE Common Stock.
In connection with the Merger, AMCE has filed a Registration Statement on
Form S-4 (the "Registration Statement"), of which this Proxy--Information
Statement/Prospectus is a part, with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), covering the AMCE Common Stock and AMCE Class B Stock
issuable in the Merger to holders of shares of DI Class A Stock and DI Class B
Stock.
Holders of AMCE Common Stock and AMCE Class B Stock generally vote as a
class on all matters other than the election of directors, with each share of
AMCE Common Stock having one vote per share and each share of AMCE Class B Stock
having ten votes per share. Subject to provisions of AMCE's Amended and Restated
Certificate of Incorporation ("Certificate of Incorporation") which apply if
outstanding shares of AMCE Class B Stock cease to represent in excess of 12 1/2%
of the combined number of outstanding shares of AMCE Common Stock and AMCE Class
B Stock, holders of AMCE Class B Stock are entitled to elect, voting as a class,
75% of the AMCE Board of Directors, and holders of AMCE Common Stock are
entitled to elect, voting as a class, 25% of the AMCE Board of Directors. Each
share of AMCE Class B Stock is convertible into one share of AMCE Common Stock.
Subject to the prior rights of holders of shares of AMCE $1.75 Cumulative
Convertible Preferred Stock ("Convertible Preferred Stock"), holders of AMCE
Common Stock and AMCE Class B Stock are entitled to receive, pro rata per share,
such dividends as may be declared by the AMCE Board. Holders of AMCE Common
Stock and AMCE Class B Stock are entitled to receive, pro rata per share,
consideration of equal value in any merger or consolidation. See "Information
about the Company--Description of AMCE Capital Stock."
This Proxy--Information Statement/Prospectus is first being mailed on or
about June 25, 1997 to all stockholders of AMCE of record on June 19, 1997 (the
"AMCE Record Date"), whether or not such stockholders are entitled to vote at
the AMCE Special Meeting.
This Proxy--Information Statement/Prospectus and accompanying form of proxy
are first being mailed on or about June 25, 1997 to all shareholders of DI of
record on June 19, 1997 (the "DI Record Date").
----------------
THIS PROXY--INFORMATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION IN SUCH JURISDICTION. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROXY--INFORMATION STATEMENT/ PROSPECTUS IN CONNECTION WITH THE OFFERING MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AMCE, DI OR ANY OTHER PERSON. NEITHER
THE DELIVERY OF THIS PROXY--INFORMATION STATEMENT/PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF AMCE OR DI SINCE SUCH DATE. ALL INFORMATION
REGARDING AMCE IN THIS PROXY--INFORMATION STATEMENT/PROSPECTUS HAS BEEN SUPPLIED
BY AMCE, AND ALL INFORMATION REGARDING DI HAS BEEN SUPPLIED BY DI.
----------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
MS. NANCY L. GALLAGHER, VICE PRESIDENT AND SECRETARY OF AMCE, 106 WEST 14TH
STREET, KANSAS CITY, MISSOURI 64105 (TELEPHONE: (816) 221-4000). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 22,
1997.
2
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TABLE OF CONTENTS
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SUMMARY............................................................................. 1
Synopsis...................................................................... 1
The Merger.................................................................... 4
The Company................................................................... 12
Recent Note Offering and Amendment to Credit Facility......................... 15
Durwood, Inc.................................................................. 16
Market Values and Dividends................................................... 16
Summary Financial Data........................................................ 17
Pro Forma Per Share Data...................................................... 21
RISK FACTORS........................................................................ 22
THE AMCE SPECIAL MEETING............................................................ 24
THE MERGER.......................................................................... 27
Background of the Merger...................................................... 27
Reports of Advisors........................................................... 33
Reasons for Recommendation.................................................... 34
Material Terms of the Merger.................................................. 38
The Merger Agreement........................................................ 38
The Stock Agreement......................................................... 42
The Registration Agreement.................................................. 43
The Indemnification Agreement............................................... 44
General Effects of the Merger................................................. 46
Management and Operations of AMCE After the Merger............................ 48
Certain Federal Income Tax Consequences....................................... 48
Interests of Certain Persons in the Merger.................................... 49
Dissenters' Rights............................................................ 50
Accounting Treatment.......................................................... 51
CAPITALIZATION OF THE COMPANY....................................................... 52
INFORMATION ABOUT THE COMPANY....................................................... 53
Dividends and Price Range of AMCE Common Stock................................ 53
Selected Financial Data....................................................... 54
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 56
Business of the Company....................................................... 64
Management of the Company..................................................... 75
Certain Transactions.......................................................... 86
Description of AMCE Capital Stock............................................. 87
INFORMATION ABOUT DI................................................................ 92
Selected Financial Data....................................................... 92
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................... 95
Business of DI................................................................ 104
Security Ownership of DI...................................................... 104
Market for and Dividends on DI Stock.......................................... 104
COMPARISON OF AND RIGHTS OF HOLDERS OF AMCE COMMON AND CLASS B STOCK AND DI STOCK... 105
DI SPECIAL MEETING.................................................................. 111
STOCKHOLDER PROPOSALS............................................................... 111
LEGAL MATTERS....................................................................... 111
EXPERTS............................................................................. 111
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TABLE OF CONTENTS
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INCORPORATION BY REFERENCE.......................................................... 112
AVAILABLE INFORMATION............................................................... 113
INDEX TO FINANCIAL STATEMENTS....................................................... F-1
Annex 1 - Agreement and Plan of Merger and Reorganization (the "Merger Agreement") A1-1
Exhibit A to Merger Agreement - DI Pre-Merger Action Plan A1-20
Exhibit B to Merger Agreement - Stock Agreement A1-21
Exhibit C to Merger Agreement - Registration Agreement A1-31
Exhibit D to Merger Agreement - Indemnification Agreement A1-46
Exhibit B to Indemnification Agreement - Escrow Agreement A1-55
Annex 2 - Opinion of Furman Selz LLC A2-1
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SUMMARY
THE FOLLOWING IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, CONTAINED ELSEWHERE IN THIS
PROXY-- INFORMATION STATEMENT/PROSPECTUS AND THE EXHIBITS HERETO. STOCKHOLDERS
ARE URGED TO READ THIS PROXY--INFORMATION STATEMENT/PROSPECTUS, INCLUDING
EXHIBITS, IN ITS ENTIRETY. COPIES OF THE MERGER AGREEMENT, THE REGISTRATION
AGREEMENT, THE STOCK AGREEMENT AND THE INDEMNIFICATION AGREEMENT REFERRED TO
HEREIN ARE SET FORTH IN ANNEX 1 HERETO, AND THE SUMMARIES OF SUCH DOCUMENTS
CONTAINED HEREIN ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FULL TEXTS
OF SUCH AGREEMENTS.
AS USED HEREIN, THE TERM "COMPANY" MEANS AMC ENTERTAINMENT INC. ("AMCE")
AND, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS SUBSIDIARIES, INCLUDING AMERICAN
MULTI-CINEMA, INC. ("AMC") AND ITS SUBSIDIARIES. REFERENCES TO (I) "MR. STANLEY
H. DURWOOD" INCLUDE, IF THE CONTEXT REQUIRES, MR. STANLEY H. DURWOOD
INDIVIDUALLY AND AS TRUSTEE OF THE 1992 DURWOOD, INC. VOTING TRUST DATED
DECEMBER 12, 1992 (THE "1992 TRUST") AND AS TRUSTEE OF THE TRUST CREATED
PURSUANT TO THE REVOCABLE TRUST AGREEMENT OF MR. STANLEY H. DURWOOD DATED AUGUST
14, 1989, AS AMENDED (THE "1989 TRUST"), (II) "DURWOOD FAMILY STOCKHOLDERS"
MEANS MR. STANLEY H. DURWOOD AND HIS CHILDREN, MRS. CAROL D. JOURNAGAN, MR.
EDWARD D. DURWOOD, MR. THOMAS A. DURWOOD, MRS. ELISSA D. GRODIN, MR. BRIAN H.
DURWOOD AND MR. PETER J. DURWOOD (COLLECTIVELY, THE "DURWOOD CHILDREN"), (III)
"UNAFFILIATED STOCKHOLDERS" MEANS STOCKHOLDERS OF AMCE OTHER THAN THE DURWOOD
FAMILY STOCKHOLDERS, (IV) "DI" MEANS DURWOOD, INC., A MISSOURI CORPORATION, (V)
"DELTA" MEANS DELTA PROPERTIES, INC., A MISSOURI CORPORATION AND A SUBSIDIARY OF
DI, (VI) "AAE" MEANS AMERICAN ASSOCIATED ENTERPRISES, A MISSOURI LIMITED
PARTNERSHIP, AND (VI) THE PERCENTAGE "VOTING INTEREST" OR "VOTING POWER" OF A
STOCKHOLDER OR GROUP OF STOCKHOLDERS OF AMCE MEANS THE PERCENTAGE DERIVED BY
DIVIDING THE NUMBER OF VOTES ATTRIBUTABLE TO SHARES OF AMCE COMMON STOCK OR AMCE
CLASS B STOCK OWNED BY THAT STOCKHOLDER OR GROUP BY THE NUMBER OF VOTES
ATTRIBUTABLE TO ALL OUTSTANDING SHARES OF AMCE COMMON STOCK AND CLASS B STOCK,
WITH EACH SHARE OF AMCE COMMON STOCK HAVING ONE VOTE PER SHARE AND EACH SHARE OF
AMCE CLASS B STOCK HAVING TEN VOTES PER SHARE.
Except as otherwise noted, stockholdings and voting interests in AMCE are
based on shares outstanding as of May 19, 1997 and do not reflect any
conversions into AMCE Common Stock of the 3,175,800 shares of Convertible
Preferred Stock outstanding on such date. Shares of Convertible Preferred Stock
are presently convertible into Common Stock at the ratio of 1.724 shares of
Common Stock for each share of Convertible Preferred Stock.
SYNOPSIS
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THE COMPANY..................... The Company is primarily engaged in the theatrical
exhibition business. As of April 3, 1997, it operated 228
theatres with an aggregate of 1,957 screens located in 23
states, the District of Columbia, Portugal and Japan.
DURWOOD, INC.................... DI is a holding company whose principal shareholders are
Mr. Stanley H. Durwood and AAE. Mr. Stanley H. Durwood
owns 119,500, or 99%, of the 120,000 outstanding shares of
DI Class A Stock, representing approximately 75% of the
voting power of DI, and AAE owns 40,784, or 100%, of the
outstanding shares of DI Class B Stock, representing
approximately 25% of the voting power of DI. AAE's
partners are Mr. Stanley H. Durwood and the Durwood
Children. Mr. Stanley H. Durwood is the sole director of
DI and his son, Mr. Edward D. Durwood, is the managing
general partner of AAE. DI's principal asset consists of
AMCE stock and at
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1
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present it has no significant business activity other than
the ownership of such AMCE stock.
DI, which is wholly owned by the Durwood family, is the
majority stockholder of AMCE, owning 2,641,951, or 38.8%,
of the outstanding shares of AMCE Common Stock as of May
19, 1997, and 11,157,000, or 100%, of the outstanding
shares of AMCE Class B Stock as of such date.
DATE, TIME AND PLACE OF AMCE
SPECIAL MEETING............... The AMCE Special Meeting will be held on Tuesday, July 29,
1997 at 2:00 p.m., local time, at the offices of Lathrop &
Gage L.C., 2345 Grand Avenue, 24th Floor, Kansas City,
Missouri.
AMCE RECORD DATE; STOCKHOLDERS
ENTITLED TO VOTE.............. The AMC Board has set June 19, 1997 as the record date for
the AMCE Special Meeting (the "AMCE Record Date"). Holders
of AMCE Common Stock and AMCE Class B Stock on the AMCE
Record Date will be entitled to vote at the AMCE Special
Meeting. On the AMCE Record Date, there were [6,804,296]
shares of AMCE Common Stock outstanding, each of which
will be entitled to one vote on each matter properly
submitted to stockholders at the AMCE Special Meeting, and
11,157,000 shares of AMCE Class B Stock outstanding, each
of which will be entitled to ten votes on each matter
properly submitted to stockholders at the AMCE Special
Meeting.
DATE, TIME AND PLACE OF DI
SPECIAL MEETING............... The DI Special Meeting will be held on July 29, 1997 at
1:00 p.m., local time, at the corporate headquarters of
DI, 106 West 14th Street, Kansas City, Missouri.
DI RECORD DATE; SHAREHOLDERS
ENTITLED TO VOTE.............. The record date for the DI Special Meeting is June 19,
1997 (the "DI Record Date"). Holders of DI Class A stock
and DI Class B Stock on the DI Record Date will be
entitled to vote at the DI Special Meeting. Each share of
DI Class A Stock and DI Class B Stock will be entitled to
one vote on each matter properly submitted for vote to DI
shareholders at the DI Special Meeting.
PURPOSE OF SPECIAL MEETINGS..... At the Special Meetings, stockholders of AMCE and DI will
be asked to approve the Merger Agreement between AMCE and
its controlling stockholder, DI.
THE MERGER...................... If the Merger Agreement is approved, DI will be merged
into AMCE, and AMCE will be the surviving corporation in
the Merger. In the Merger, shares of DI stock will be
exchanged for shares of AMCE stock. There will be no
increase in the aggregate number of outstanding shares of
AMCE as a result of the Merger, although the number of
outstanding shares of AMCE Common Stock will increase and
the number of outstanding shares of AMCE Class B Stock
will decrease. The percentage of shares of outstanding
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AMCE Common Stock held by unaffiliated stockholders will
decrease from 61.2% before the Merger to 32.3% after the
Merger, based on shares outstanding as of May 19, 1997,
but the voting interest in AMCE of unaffiliated
stockholders will increase from 3.5% before the Merger to
6.6% after the Merger. SHARES OF AMCE STOCK HELD BY
STOCKHOLDERS OTHER THAN DI WILL REMAIN ISSUED AND
OUTSTANDING AND WILL NOT BE EXCHANGED IN THE MERGER. See
"--The Merger--General."
The Merger has been approved by a Special Committee of the
AMCE Board consisting of Messrs. Charles J. Egan, Jr. and
Paul E. Vardeman (the "Special Committee"), by the New
Independent Directors of AMCE (as defined herein under
"--The Derivative Action Settlement Agreement") and by the
full AMCE Board. The Merger has also been approved by Mr.
Stanley H. Durwood, as sole director of DI.
AMCE REASONS FOR THE MERGER..... The Special Committee of the AMCE Board has concluded that
the Merger is fair to, and in the best interests of, AMCE
and its unaffiliated stockholders because (i) it will
increase the voting interest in AMCE of unaffiliated
stockholders, (ii) it will simplify the corporate
structure of AMCE, (iii) it will be accounted for as a
corporate reorganization, will not affect AMCE's total
capitalization and will have no tax effect on unaffiliated
stockholders, and (iv) the Durwood Family Stockholders
have agreed to sell a portion of the shares they receive
in the Merger in a registered secondary offering, which
will increase the public "float" and liquidity of AMCE
Common Stock, as a result of which the volatility of daily
stock price changes may be reduced, the bid/ asked spread
for AMCE Common Stock may narrow and the interest of
institutional investors in the AMCE Common Stock may
increase. These effects, over time, may enhance
shareholder value. Because AMCE will be reimbursed by Mr.
Stanley H. Durwood and certain related trusts and entities
for 50% and, in certain instances, 100% of its expenses in
connection with the Merger and subsequent secondary
offering by the Durwood Family Stockholders, the Special
Committee concluded that all of these benefits are
possible without substantial cost to AMCE or its
unaffiliated stockholders. The AMCE Board has adopted the
reasons of the Special Committee for approving the Merger.
See "--AMCE Reasons for the Merger" and "The
Merger--Certain Federal Income Tax Consequences."
DI REASONS FOR THE MERGER....... The Merger will permit the Durwood Family Stockholders to
hold their interests in AMCE directly instead of
indirectly through DI and AAE, thereby enhancing their
liquidity through ownership of a marketable security.
VOTE REQUIRED................... Under the Delaware General Corporation Law (the "DGCL")
and AMCE's Certificate of Incorporation, the Merger
Agreement requires the approval of the holders of a
majority of the votes of
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shares of AMCE Common Stock and AMCE Class B Stock
outstanding on the AMCE Record Date, with such shares
voting together as a single class and with each share of
AMCE Common Stock being entitled to one vote and each
share of AMCE Class B Stock being entitled to ten votes.
DI owned all outstanding shares of AMCE Class B Stock and
2,641,951, or 38.8%, of the outstanding shares of AMCE
Common Stock as of the AMCE Record Date. As of the AMCE
Record Date, other directors and executive officers of
AMCE were entitled to vote 19,418 shares of AMCE Common
Stock. DI has indicated its intention to vote the shares
of AMCE Stock which it owns in favor of the Merger
Agreement.
The Merger Agreement also requires the approval of the
holders of two-thirds of the outstanding shares of DI
Class A Stock and DI Class B Stock, voting together as a
single class, and of the holders of a majority of the
shares of DI Class A Stock and DI Class B Stock,
respectively, each voting as a separate class. Mr. Stanley
H. Durwood and the Durwood children (provided the Merger
occurs before September 30, 1997) have indicated their
intention to cause the shares of DI stock which they
beneficially own to be voted in favor of the Merger
Agreement.
Upon the recommendation of the Special Committee, a
condition to the Merger is that the Merger Agreement also
receive approval of the holders of a majority of shares of
AMCE Common Stock present or represented by proxy and
voting at the AMCE Special Meeting, other than those
shares held by DI, the Durwood Family Stockholders, their
spouses, their children living in the same household and
directors and officers of AMCE.
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THE MERGER
GENERAL
The Merger has been sought by the Durwood Family Stockholders so that they
may hold their interests in AMCE directly instead of indirectly through DI and
AAE. AMCE was asked to consider engaging in the Merger and related transactions,
and the Special Committee was appointed to consider and review the Merger. If
the Special Committee considered the Merger to be in the best interests of AMCE
and its unaffiliated stockholders, it was to negotiate the terms of the Merger
and related transactions and make recommendations to the full AMCE Board in this
connection. The Special Committee was given the full power and authority of the
AMCE Board to reject the Merger. After its investigation and analysis and
negotiations, the Special Committee has recommended the approval of the Merger
Agreement and related transactions. Each of the New Independent Directors and
the full AMCE Board have also voted to approve the Merger Agreement and related
transactions. See "The Merger--Background of the Merger." Consummation of the
Merger also has been made a condition of settlement of the Derivative Action (as
defined herein) to which the Company and certain of its current and former
directors are parties. See "--The Derivative Action" and "Information About the
Company--Business of the Company--Legal Proceedings."
Immediately prior to the Merger, AAE will be liquidated and DI will convert
6,141,343 shares of AMCE Class B Stock into shares of AMCE Common Stock, so that
at the Effective Time of the Merger, DI will own 5,015,657 shares of AMCE Class
B Stock and 8,783,294 shares of AMCE Common Stock. Pursuant
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to the terms and subject to the conditions of the Merger Agreement, upon
consummation of the Merger (i) each share of AMCE Common Stock and AMCE Class B
Stock held by DI will be canceled, (ii) each share of DI Class A Stock presently
held by Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust will be
converted into and exchanged for 32.142857 shares of AMCE Class B Stock, so that
the 119,500 shares of DI Class A Stock presently held by Mr. Stanley H. Durwood,
the 1989 Trust or the 1992 Trust will be convertible into and exchangeable for
an aggregate of 3,841,071 shares of AMCE Class B Stock, (iii) each share of DI
Class A Stock presently held by persons other than Mr. Stanley H. Durwood, the
1989 Trust or the 1992 Trust will be converted into and exchanged for 32.142857
shares of AMCE Common Stock, so that the 500 shares of DI Class A Stock
presently held by persons other than Mr. Stanley H. Durwood, the 1989 Trust or
the 1992 Trust will be convertible into and exchangeable for an aggregate of
16,071 shares of AMCE Common Stock, (iv) each share of DI Class B Stock to be
held by Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust will be
converted into and exchanged for 243.767528 shares of AMCE Class B Stock, so
that the 4,818.4664 shares of DI Class B Stock to be held by Mr. Stanley H.
Durwood, the 1989 Trust or the 1992 Trust will be convertible into and
exchangeable for an aggregate of 1,174,586 shares of AMCE Class B Stock, and (v)
each share of DI Class B Stock to be held by the Durwood Children will be
converted into and exchanged for 243.767341 shares of AMCE Common Stock, so that
the 35,965.5336 shares of DI Class B Stock to be held by the Durwood Children
will be convertible into and exchangeable for an aggregate of 8,767,223 shares
of AMCE Common Stock.
SHARES OF AMCE STOCK HELD BY STOCKHOLDERS OTHER THAN DI WILL REMAIN ISSUED
AND OUTSTANDING AND WILL NOT BE EXCHANGED IN THE MERGER. HOLDERS OF AMCE STOCK
OTHER THAN DI SHOULD NOT SURRENDER THEIR SHARES IN CONNECTION WITH THE MERGER.
After giving effect to the liquidation of AAE and the Merger, there will be
issued and outstanding 5,015,657 shares of AMCE Class B Stock, all of which will
be beneficially owned by Mr. Stanley H. Durwood, and (based on the number of
such shares outstanding as of May 19, 1997) 12,945,639 shares of AMCE Common
Stock, of which 8,767,223 will be beneficially owned by the Durwood Children.
The following table shows the percentage of the ownership and voting
interests of AMCE held by the Durwood Family Stockholders and unaffiliated
stockholders of AMCE before the Merger and after the Merger, based on shares
outstanding as of May 19, 1997, assuming first no conversion of Convertible
Preferred Stock outstanding on that date and then assuming full conversion into
AMCE Common Stock of Convertible Preferred Stock outstanding on that date.
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PRE-MERGER
------------------------------------------------------
DURWOOD FAMILY
STOCKHOLDERS UNAFFILIATED STOCKHOLDERS
-------------------------- --------------------------
FULLY FULLY
UNCONVERTED CONVERTED UNCONVERTED CONVERTED
------------- ----------- ------------- -----------
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PERCENTAGE HELD
Class B Stock.............................................. 100.0% 100.0% -- --
Common Stock............................................... 38.8% 21.5% 61.2% 78.5%
Voting Interest............................................ 96.5% 92.2% 3.5% 7.8%
</TABLE>
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POST-MERGER
----------------------------------------------------------------------------------
STANLEY H. DURWOOD DURWOOD CHILDREN UNAFFILIATED STOCKHOLDERS
-------------------------- -------------------------- --------------------------
FULLY FULLY FULLY
UNCONVERTED CONVERTED UNCONVERTED CONVERTED UNCONVERTED CONVERTED
------------- ----------- ------------- ----------- ------------- -----------
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PERCENTAGE HELD
Class B Stock.................. 100.0% 100.0% -- -- -- --
Common Stock................... -- -- 67.7% 47.6% 32.3% 52.4%
Voting Interest................ 79.5% 73.1% 13.9% 12.8% 6.6% 14.1%
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Prior to the Effective Time of the Merger (as defined herein under "The
Merger--Material Terms of the Merger--The Merger Agreement"), all of DI's assets
(other than its equity interest in AMCE), consisting primarily of life insurance
policies, cash and notes of the Durwood Children and a former officer of the
Company, will be contributed to Delta. In addition, DI's other subsidiaries,
other than AMCE and its subsidiaries, have been merged into Delta and Delta has
agreed to assume DI's liabilities. Delta's stock will be distributed to DI's
shareholders, so that at the Effective Time DI's sole assets will consist of
stock of AMCE and its beneficial interest in certain tax credits and operating
loss carryforwards. (As a result of certain provisions of the Merger Agreement
and related agreements described below, AMCE will not benefit from such tax
credits and operating loss carryforwards.)
If the Merger occurs, Mr. Stanley H. Durwood will indemnify AMCE for all
losses resulting from any breach by DI of the Merger Agreement or resulting from
any liability of DI and for all taxes attributable to DI prior to the Effective
Time and all losses in connection therewith. If the Merger does not occur,
subject to certain limitations, Mr. Stanley H. Durwood and Delta will indemnify
AMCE against losses resulting from any breach by DI of the Merger Agreement. See
"--The Indemnification Agreement" and "The Merger--Material Terms of the
Merger--The Merger Agreement--Expenses."
Under the Merger Agreement, AMCE will be responsible for paying 50% of its
costs in connection with the Merger; the aggregate merger costs for both the
Company and DI are estimated to be approximately $2 million. If the Merger
occurs, Mr. Stanley H. Durwood and Delta have agreed, subject to certain
limitations, to indemnify AMCE for all of DI's Merger expenses which are not
paid prior to the Effective Time and for 50% of AMCE's expenses in connection
with the Merger. This obligation of Mr. Stanley H. Durwood may be offset by
certain Credit Amounts (as defined below under "--Indemnification Agreement")
resulting from the realization by AMCE of tax benefits from the utilization of
certain tax credits and operating loss carryforwards of DI. See "--The
Indemnification Agreement." If the Merger is not consummated for any reason
(other than as a result of certain terminations by the AMCE Board), DI will be
responsible for all of its expenses and AMCE's expenses in the Merger. If the
Merger is not consummated as a result of certain terminations by the AMCE Board,
DI will be responsible for all of its expenses and 50% of AMCE's expenses in the
Merger. Mr. Stanley H. Durwood and Delta have agreed to indemnify AMCE for any
breach by DI of such obligation described in the preceding two sentences.
As promptly as practicable after March 31, 2000, AMCE will pay Mr. Stanley
H. Durwood an amount equal to any Credit Amounts which have not been used to
offset various of his obligations to AMCE under the Stock Agreement, the
Indemnification Agreement and the Registration Agreement. If such benefits are
realized after such date, the related Credit Amounts will be paid to Mr. Stanley
H. Durwood when they are realized. See "--The Indemnification Agreement; --The
Stock Agreement; --The Registration Agreement."
For a period of three years after the Merger, the Durwood Children have
agreed to give an irrevocable proxy to the Secretary and each Assistant
Secretary of AMCE to vote their shares of AMCE Common Stock in the election of
directors for each candidate in the same proportionate manner as the aggregate
votes cast in such elections by other holders of AMCE Common Stock not
affiliated with AMCE, its directors and officers. See "--The Stock Agreement."
If the Merger Agreement is not approved by the holders of a majority of
shares of AMCE Common Stock present or represented by proxy and voting at the
AMCE Special Meeting, other than those shares held by DI, the Durwood Family
Stockholders, their spouses, their children living in the same household and
directors and officers of AMCE, the Merger Agreement will be terminated and the
Merger abandoned.
THE REGISTRATION AGREEMENT; SECONDARY OFFERING
As a condition to the Merger, AMCE and the Durwood Family Stockholders will
enter into a registration agreement (the "Registration Agreement") pursuant to
which the Durwood Family Stockholders will agree to sell at least 3,000,000
shares of AMCE Common Stock in a registered secondary
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offering (the "Secondary Offering") and AMCE will agree to file a registration
statement with respect to such shares so that the registration statement becomes
effective not more than twelve months and not less than six months after the
Merger. Consummation of the Secondary Offering is subject to certain conditions
and other rights of the parties. Subject to certain conditions, the expenses of
the Secondary Offering will be borne by Mr. Stanley H. Durwood and Delta. See
"The Merger--Material Terms of the Merger--The Registration Agreement." This
obligation may be offset by certain Credit Amounts resulting from the
realization by AMCE of tax benefits from the utilization of certain tax credits
and operating loss carryforwards of DI. See "--Indemnification Agreement."
Of the 3,000,000 shares to be sold in the Secondary Offering, 500,000 will
be sold by Mr. Stanley H. Durwood or his charitable donees who may agree to
participate in the Secondary Offering. Based on shares outstanding as of May 19,
1997, after giving effect to the Secondary Offering (assuming such shares are
sold to unaffiliated stockholders and disregarding shares which may be acquired
by Mr. Stanley H. Durwood upon the exercise of employee stock options and shares
which he may transfer to the Durwood Children under the Share Adjustment (as
defined herein under "The Merger--Background of the Merger--Subsequent Meetings
of the Special Committee" )), (i) unaffiliated stockholders will own
approximately 7.2 million shares of AMCE Common Stock, (ii) Mr. Stanley H.
Durwood will own approximately 4.5 million, or 100% of the outstanding, shares
of AMCE Class B Stock, and will be entitled to elect 75% of the AMCE Board, and
(iii) the Durwood Children will own in the aggregate approximately 6.3 million
shares of AMCE Common Stock. Holders of AMCE Common Stock are entitled to elect
25% of the AMCE Board.
As noted in the preceding paragraph, the number of shares owned by Mr.
Stanley H. Durwood could be further reduced and the shares owned by the Durwood
Children increased as a result of other agreements among the Durwood Family
Stockholders. See "Risk Factors-- Controlling Stockholders" and "The
Merger--Background of the Merger--Subsequent Meetings of the Special Committee."
The following table shows the percentage of the ownership and voting
interests of AMCE held by Mr. Stanley H. Durwood, the Durwood Children and
unaffiliated stockholders of AMCE, first after the Merger and then after the
Secondary Offering, based on shares outstanding as of May 19, 1997, assuming
first no conversion of Convertible Preferred Stock outstanding on such date and
then assuming full conversion into AMCE Common Stock of Convertible Preferred
Stock outstanding on such date. The percentages in the table presenting
Post-Secondary Offering results assume that shares sold in the Secondary
Offering are purchased by unaffiliated stockholders.
<TABLE>
<CAPTION>
POST-MERGER
----------------------------------------------------------------------------------
STANLEY H. DURWOOD DURWOOD CHILDREN UNAFFILIATED STOCKHOLDERS
-------------------------- -------------------------- --------------------------
FULLY FULLY FULLY
UNCONVERTED CONVERTED UNCONVERTED CONVERTED UNCONVERTED CONVERTED
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE HELD
Class B Stock.................. 100.0% 100.0% -- -- -- --
Common Stock................... -- -- 67.7% 47.6% 32.3% 52.4%
Voting Interest................ 79.5% 73.1% 13.9% 12.8% 6.6% 14.1%
</TABLE>
<TABLE>
<CAPTION>
POST-SECONDARY OFFERING
----------------------------------------------------------------------------------
STANLEY H. DURWOOD DURWOOD CHILDREN UNAFFILIATED STOCKHOLDERS
-------------------------- -------------------------- --------------------------
FULLY FULLY FULLY
UNCONVERTED CONVERTED UNCONVERTED CONVERTED UNCONVERTED CONVERTED
------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE HELD
Class B Stock.................. 100.0% 100.0% -- -- -- --
Common Stock................... -- -- 46.6% 33.1% 53.4% 66.9%
Voting Interest................ 77.0% 70.4% 10.7% 9.8% 12.3% 19.8%
</TABLE>
7
<PAGE>
THE INDEMNIFICATION AGREEMENT
In connection with the Merger, Mr. Stanley H. Durwood, Delta and the Durwood
Children have entered into an agreement (the "Indemnification Agreement")
agreeing to indemnify AMCE from certain losses and expenses. If the Merger
occurs, (i) Mr. Stanley H. Durwood will indemnify AMCE from losses resulting
from any breach by DI of its representations, warranties and covenants in the
Merger Agreement or based upon any liability of DI and for any taxes (or losses
incurred by AMCE in connection therewith) attributable to DI or its subsidiaries
for taxable periods prior to the Effective Time, (ii) each of the Durwood Family
Stockholders will (severally and not jointly) indemnify AMCE for any losses
which it might incur as a result of the breach by such party of certain tax
related representations, warranties and covenants made by such party in the
Stock Agreement and (iii) subject to certain conditions, Mr. Stanley H. Durwood
and Delta will indemnify AMCE from and against all of DI's Merger expenses that
have not been paid prior to the Effective Time and 50% of AMCE's Merger
expenses. If the Merger does not occur, subject to certain conditions, Mr.
Stanley H. Durwood and Delta will indemnify AMCE from losses resulting from any
breach by DI of its representations, warranties and covenants in the Merger
Agreement. If the Merger is not consummated for any reason (other than as a
result of certain terminations by the AMCE Board), DI will be responsible for
all of its expenses and AMCE's expenses in the Merger. If the Merger is not
consummated as a result of certain terminations by the AMCE Board, DI will be
responsible for all of its expenses and 50% of AMCE's expenses in the Merger.
Mr. Stanley H. Durwood and Delta have agreed to indemnify AMCE for any breach by
DI of such obligation described in the preceding two sentences.
Mr. Stanley H. Durwood's obligations (i) to pay DI's unpaid expenses and 50%
of AMCE's Merger expenses if the Merger occurs, as required by the
Indemnification Agreement, (ii) to pay AMCE's expenses in the Secondary
Offering, as required by the Registration Agreement, and (iii) to pay a $2
million penalty and 100% of AMCE's Merger expenses if the Secondary Offering
does not occur, as required by the Stock Agreement, may be offset by certain
credit amounts resulting from net tax benefits realized by AMCE from the
utilization by AMCE of DI's alternative minimum tax credit carryforwards and
Missouri operating loss carryforwards ("Credit Amounts"). Any Credit Amount not
so applied will be paid to Mr. Stanley H. Durwood promptly after March 31, 2000.
Any Credit Amount that arises after March 31, 2000 also will be paid promptly to
Mr. Stanley H. Durwood. The maximum amount of Credit Amounts that could be paid
to Mr. Durwood or used to offset his responsibilities to AMCE is approximately
$1,100,000, reduced by any amounts utilized on separate DI income tax returns
for 1996 and the portion of 1997 prior to the Effective Time.
In connection with the Merger, AMCE has agreed to indemnify the Durwood
Children from losses resulting from any breach by AMCE of any representation,
warranty, covenant or agreement made by it in the Merger Agreement.
The foregoing indemnification obligations generally will lapse on March 31,
2000.
See "The Merger--Material Terms of the Merger--The Indemnification
Agreement."
THE STOCK AGREEMENT
As a condition precedent to the Merger, the Durwood Family Stockholders will
enter into an agreement (the "Stock Agreement") which, for three years, limits
the ability of the Durwood Children to deposit shares in a voting trust, solicit
proxies, participate in election contests or make a proposal concerning an
extraordinary transaction involving AMCE. Under the Stock Agreement, the Durwood
Children will also agree, among other matters, for a period of three years, (i)
to grant an irrevocable proxy to the Secretary and each Assistant Secretary of
AMCE to vote their shares of AMCE Common Stock for each candidate to the AMCE
Board in the same proportion as the aggregate votes cast by all other
stockholders not affiliated with AMCE, its directors or officers and (ii) that
AMCE will have a right of first refusal with respect to any such shares the
Durwood Children wish to sell in a transaction exempt from
8
<PAGE>
registration, except for such shares sold in brokers' transactions. See "The
Merger--Material Terms of the Merger--The Stock Agreement." The Stock Agreement
obligates Mr. Stanley H. Durwood and Delta, whose shares will be distributed by
DI to the Durwood Family Stockholders before the Merger, to pay AMCE $2 million
and to reimburse AMCE for all of its Merger expenses if the Secondary Offering
is not consummated within 12 months after the Merger. This obligation may be
offset by certain Credit Amounts resulting from the realization by AMCE of tax
benefits from the utilization of certain tax credits and operating loss
carryforwards of DI. See "--Indemnification Agreement."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Company has been advised by Chadbourne & Park LLP, special tax counsel
to the Company, that the Merger will qualify for federal income tax purposes as
a reorganization under the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, no taxable income, gain or loss will be recognized by
AMCE, DI, the AMCE stockholders or the DI shareholders as a result of the Merger
(other than incident to the receipt by DI shareholders of cash for fractional
shares or by Mr. Stanley H. Durwood of Credit Amounts). See "--The
Indemnification Agreement." Because the tax consequences of the Merger to DI
shareholders under federal, state, local and foreign tax laws may vary depending
upon a taxpayer's particular situation, it is recommended that each DI
shareholder consult with his or her own tax advisor regarding the specific tax
consequences of the Merger to that particular person. For a more complete
description of the federal income tax consequences of the Merger, see "The
Merger--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
Management expects that the Merger will be accounted for as a corporate
reorganization and that, accordingly, the recorded balances for consolidated
assets, liabilities, total stockholders' equity and results of operations of the
Company will not be affected.
AMCE REASONS FOR THE MERGER
The Special Committee and the full AMCE Board concluded that the Merger is
fair to, and in the best interests of, AMCE and its unaffiliated stockholders
for the reasons set forth below.
- Based on shares outstanding when the Special Committee and AMCE Board
approved the Merger, the Merger would increase the voting interest of the
unaffiliated stockholders from 3.3% to 6.2% (assuming no conversions of
AMCE's Convertible Preferred Stock) and from 7.8% to 14.1% (assuming full
conversion into AMCE Common Stock of AMCE's Convertible Preferred Stock).
This increase would result from the conversion by DI of shares of AMCE
Class B Stock (which have ten votes per share) into shares of AMCE Common
Stock (which have one vote per share) in connection with the Merger.
- The Merger will simplify the corporate structure of AMCE and related
companies.
- The Merger will be accounted for as a corporate reorganization, will not
affect AMCE's total capitalization and will have no tax effect on AMCE or
its unaffiliated stockholders.
- As a result of the Merger, shares of AMCE stock will be distributed to the
Durwood Family Stockholders who have agreed, subject to certain
conditions, to sell a portion of those shares in the Secondary Offering.
This Secondary Offering will benefit AMCE and its unaffiliated
stockholders because:
- The Secondary Offering will increase the public "float" of the AMCE
Common Stock by nearly 75% if the minimum of 3,000,000 shares is sold.
Based on shares outstanding when the Special Committee and the AMCE
Board approved the Merger, the voting interest of the unaffiliated
stockholders would increase from 6.2% after the Merger to 11.9% after
the
9
<PAGE>
Secondary Offering (assuming no conversion into AMCE Common Stock of
then outstanding Convertible Preferred Stock and that shares sold in
the Secondary Offering are purchased by unaffiliated stockholders) and
from 14.1% after the Merger to 19.7% after the Secondary Offering
(assuming full conversion of then outstanding Convertible Preferred
Stock and that shares sold in the Secondary Offering are purchased by
unaffiliated stockholders).
- By increasing the public float and liquidity, the Secondary Offering
may make it easier for stockholders to sell or buy shares and may
reduce the volatility of daily stock price changes, narrow the
bid/asked spread and increase the interest of institutional investors
in AMCE Common Stock. These effects, over time, may enhance shareholder
value.
Because AMCE will be reimbursed by Mr. Stanley H. Durwood and certain
related trusts and entities for 50% and, in certain instances, 100% of its
expenses in connection with the Merger and the Secondary Offering, all of these
benefits are possible without substantial cost to AMCE or its stockholders. See
"The Merger--Background of the Merger--Reasons for Recommendations."
OPINION OF FINANCIAL ADVISOR
Furman Selz LLC ("Furman Selz") has delivered to the Special Committee and
the AMCE Board its opinion to the effect that the consideration to be paid by
AMCE in the Merger is fair, from a financial point of view, to AMCE. See "The
Merger--Background of Merger--Reports of Advisors." The full text of the written
opinion, which sets forth the assumptions made, procedures followed and the
matters considered in and scope of the review by Furman Selz in rendering its
opinion, is attached as Annex 2 and should be read in its entirety. See "The
Merger--Background of the Merger--Reasons for Recommendation--Report of Furman
Selz" for information regarding, among other things, the selection of Furman
Selz and its compensation in connection with the Merger.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE AMCE BOARD
Upon the recommendation of the Special Committee, the AMCE Board (including
the New Independent Directors) has unanimously approved the Merger pursuant to
the terms of the Merger Agreement, believes that the Merger is in the best
interests of AMCE and its stockholders and recommends that the stockholders vote
FOR the proposal to approve the Merger Agreement. See "The Merger--Background of
the Merger--Reasons for Recommendations."
DI REASONS FOR THE MERGER
The Merger is being sought by the Durwood Family Stockholders pursuant to
their efforts to dissolve AAE, a family partnership, and their desire to own
AMCE shares directly instead of indirectly through DI, thereby enhancing the
liquidity of their investment in AMCE through ownership of a marketable security
instead of one that is not publicly traded.
RECOMMENDATION OF THE DI BOARD
Mr. Stanley H. Durwood, DI's sole board member, has approved the Merger
pursuant to the terms of the Merger Agreement, believes that the Merger is in
the best interests of DI and its shareholders and recommends that the DI
shareholders vote FOR the proposal to approve the Merger Agreement.
DISSENTERS' RIGHTS
Holders of AMCE Common Stock do not have appraisal rights under the DGCL in
connection with the Merger. Holders of AMCE Class B Stock have appraisal rights
under the DGCL in connection with the Merger; however, DI is the sole
stockholder of AMCE Class B Stock and is a party to the Merger
10
<PAGE>
Agreement. Shareholders of DI are entitled to dissenters' appraisal rights under
The General and Business Corporation Law of Missouri (the "GBCLM"), but a
condition to the Merger is that no DI shareholder shall have exercised his or
her dissenters' rights under the GBCLM. See "The Merger-- Dissenters' Rights."
REGULATORY MATTERS
The Merger is not subject to any federal or state regulatory requirements or
approvals.
THE DERIVATIVE ACTION SETTLEMENT AGREEMENT
The dissolution of AAE, the Merger and the sale of at least 3,000,000 shares
of AMCE Common Stock by the Durwood Family Stockholders are provided for in the
settlement of a derivative action (the "Derivative Action") that was filed by
certain stockholders in 1993 against Messrs. Stanley H. Durwood, Edward D.
Durwood, Charles J. Egan, Jr., Paul E. Vardeman and a former AMCE director. The
Derivative Action originally was brought as separate actions by Mr. Scott C.
Wallace and Mr. James M. Bird. In December 1994, the court, pursuant to a
stipulation by the parties, approved Mr. Wallace's withdrawal and granted the
motion for intervention filed by Mr. Philip J. Bogosian, Auginco, Mr. Norman M.
Werther and Ms. Ellen K. Werther. The separate actions were consolidated in
1995.
In the Derivative Action, plaintiffs allege breach of fiduciary duties of
care, loyalty and candor, mismanagement, constructive fraud and waste of assets
in connection with, among other allegations, the provision of film licensing,
accounting and financial services to the Company by AAE, certain other
transactions with affiliates of the Company, termination payments to a former
officer, certain transactions between the Company and National Cinema Supply
Corporation, and a fee paid by a subsidiary to a former director in connection
with a transaction between the Company and TPI Entertainment, Inc. Plaintiffs
in the Derivative Action seek unspecified money damages and equitable relief and
costs, including reasonable attorneys' fees. See "Information about the
Company--Business of the Company--Legal Proceedings."
In June of 1996, counsel for the parties to the Derivative Action entered
into a non-binding memorandum of understanding concerning a possible settlement
of the Derivative Action, subject to completion of certain discovery by
plaintiffs. The memorandum of understanding reflected, in substance, the
elements of the settlement eventually embodied in the Derivative Action
Settlement Agreement discussed below.
On October 10, 1996, counsel for the parties in the Derivative Action
entered into a Stipulation and Agreement of Compromise and Settlement (the
"Derivative Action Settlement Agreement") providing for the discharge and
release of all claims against the defendants, the Durwood Family Stockholders
and the Company relating to such transactions, the proposed settlement, the
Merger, the Secondary Offering and indemnification of defendants for their
expenses, except claims for fraud, misrepresentation or omissions in connection
with the Secondary Offering and claims relating to the implementation of the
settlement. The Derivative Action Settlement Agreement provides, among other
matters, (i) for the dissolution of AAE, the merger of DI into AMCE and the
sale, within 12 months thereafter, of 3,000,000 shares of AMCE Common Stock by
the Durwood Family Stockholders in a public underwritten secondary offering
(which will only be made by means of a prospectus), (ii) for the payment by
defendants of an aggregate of approximately $1.3 million to persons who were
holders of AMCE Common Stock on January 2, 1996 (other than the defendants, DI
or the Durwood Family Stockholders), (iii) the nomination, for three annual
meetings, of two additional outside directors (initially, Messrs. William T.
Grant, II and John P. Mascotte (collectively, with their replacements, if any,
the "New Independent Directors")) to serve on the AMCE Board whose biographical
information has been furnished to plaintiffs' counsel and which persons, to be
nominated, must be serving on the board of another public company or be a member
of senior management of a publicly held company or a privately held company with
$50 million
11
<PAGE>
in annual revenues, (iv) that Messrs. Stanley H. Durwood and Edward D. Durwood
will cause the other Durwood Family Stockholders to vote their shares with
respect to the election and reelection of the New Independent Directors in the
same proportion as votes cast by all stockholders not affiliated with AMCE, its
directors and officers, (v) that the New Independent Directors are to have the
ability to approve or disapprove (a) any proposed transaction between AMCE and
any of the Durwood Family Stockholders, except with respect to compensation
issues relating to Mr. Stanley H. Durwood or any other Durwood Family
Stockholder who is an officer of AMCE, which are to be governed by existing AMCE
Board procedures, and (b) the hiring and compensation of any person related to
Mr. Stanley H. Durwood who is not an officer of AMCE, and (vi) that the New
Independent Directors, together with either Messrs. Charles J. Egan, Jr. or Paul
E. Vardeman, are to have the ability to approve or disapprove all other
related-party transactions with all officers, directors and ten percent
stockholders of AMCE.
The Derivative Action Settlement Agreement provides that AMCE will pay the
cost of providing notice of the settlement to its stockholders and for the fees
of the settlement administrator who will be responsible for distributing the
settlement amount to eligible stockholders.
The Derivative Action Settlement Agreement requires court approval and is
conditioned upon, among other things, the consummation of the Merger. It is not
anticipated that a hearing to approve the Derivative Action Settlement Agreement
will occur until after the Merger is consummated because the Merger is a
condition to the Derivative Action Settlement Agreement. In the hearing, the
court will determine whether the settlement is fair to present and former
stockholders who are members of the plaintiff class but will not make a separate
determination as to the fairness of the Merger.
Although consummation of certain of the transactions contemplated by the
Durwood Family Settlement Agreement are conditions to the Derivative Action
Settlement Agreement, the agreements and the parties thereto are different. Even
if the Merger and other transactions contemplated by the Durwood Family
Settlement Agreement occur, the court may not approve the Derivative Action
Settlement Agreement.
Consistent with the Derivative Action Settlement Agreement, at AMCE's Annual
Meeting of Stockholders held on November 14, 1996, two additional outside
directors, Messrs. John P. Mascotte and William T. Grant, II, were nominated by
the company and elected to the AMCE Board by the holders of AMCE Common Stock.
The members of the Special Committee are parties to the Derivative Action.
Although they will not make any monetary payment out of personal funds as a
result of, or be subject to any sanctions under, the Derivative Action
Settlement Agreement, because they have an interest in such agreement, they may
also be deemed to have an interest in the outcome of the vote on the proposed
Merger Agreement. As described above, the Merger has also been approved by the
New Independent Directors of AMCE and by the full AMCE Board. Upon the
recommendation of the Special Committee, a condition to the Merger is that the
Merger Agreement also receive approval by the holders of a majority of the
outstanding shares of AMCE Common Stock (other than DI, the Durwood Family
Stockholders, their spouses, children sharing the same household and directors
and officers of AMCE) present or represented by proxy and voting at the AMCE
Special Meeting.
THE COMPANY
The Company is one of the leading theatrical exhibition companies in North
America. In the fiscal year ended April 3, 1997, the Company's revenues were
$749,597,000. As of April 3, 1997, the Company operated 228 theatres with an
aggregate of 1,957 screens located in 23 states, the District of Columbia,
Portugal and Japan. Approximately 61% of the screens operated by the Company are
located in Florida, California, Texas, Missouri and Michigan and approximately
73% of the Company's domestic screens are located in areas among the 20 largest
"Areas of Dominant Influence" (television market areas as defined by Arbitron
Company).
12
<PAGE>
The Company is an industry leader in the development and operation of
"megaplex" and multiplex theatres, primarily in large metropolitan markets.
Megaplex theatres are theatres having at least 14 screens with predominantly
stadium-style seating (seating with an elevation between rows to provide
unobstructed viewing). Multiplex theatres are theatres generally without
stadium-style seating and having less than 14 screens. The Company believes that
its strategy of developing megaplex theatres has prompted the current theatrical
exhibition industry trend in the United States and Canada toward the development
of larger theatre complexes. This trend has accelerated the obsolescence of many
existing movie theatres by setting new standards for moviegoers, who have
demonstrated their preference for the more attractive surroundings, wider
variety of films, better customer services and more comfortable seating typical
of megaplexes.
In addition to providing a superior entertainment experience, megaplex
theatres realize economies of scale by serving more patrons from common support
facilities, thereby spreading costs over a higher revenue base. The Company's
megaplex theatres have consistently ranked among its top grossing facilities on
a per screen basis. During the fiscal year ended April 3, 1997, attendance per
screen at the Company's megaplex theatres was 88,200 compared to 63,800 for the
Company's multiplex theatres. (During 1995, the last period for which data is
available, the theatrical exhibition industry in the United States averaged
approximately 47,000 patrons per screen.) In addition, during the fiscal year
ended April 3, 1997, average revenue per patron at the Company's megaplex
theatres was $6.54 compared to $5.95 for its multiplex theatres, and operating
cash flow before rent of the Company's megaplex theatres was 37% of the total
revenues of such theatres, whereas operating cash flow before rent of the
Company's multiplex theatres was 33% of total revenues of such theatres. As of
April 3, 1997, 591 screens, or 30.2% of the Company's screens, were in megaplex
and multiplex theatres with 14 or more screens and of these, 366 screens, or
18.7% of the Company's screens, were in megaplex theatres. The average number of
screens per theatre operated by the Company is 8.6, compared to an average of
5.9 for the ten largest North American theatrical exhibition companies (based on
number of screens) and 5.2 for all North American theatrical exhibition
companies.
The Company continually upgrades its theatre circuit by opening new theatres
(primarily megaplex theatres), adding new screens to existing theatres and
selectively closing unprofitable theatres. Since April 1995, the Company has
opened 24 new theatres with 422 screens, representing 21.6% of its current
number of screens, and has added 42 screens to existing theatres. Of these 422
screens, 366 screens were in 18 megaplex locations. Among these new theatres are
the Company's first theatre in Japan, the Canal City 13, in Fukuoka, and its
first theatre in Portugal, the Arrabida 20, in Porto. As of April 3, 1997, the
Company had 21 new theatres under construction having an aggregate of 514
screens and was adding 44 screens to existing theatres; all of these theatres
and screens will be located in the United States.
Revenues for the Company are generated primarily from box office admissions
and theatre concessions sales, which accounted for 66% and 30%, respectively, of
fiscal 1997 revenues. The balance of the Company's revenues are generated
primarily by the Company's on-screen advertising business, video games located
in theatre lobbies and the rental of theatre auditoriums.
AMCE has three direct wholly-owned subsidiaries, AMC, AMC Entertainment
International, Inc. and National Cinema Network, Inc. All of the Company's
domestic theatrical exhibition business is conducted through AMC and its
subsidiaries. The Company is developing theatres in international markets
through AMC Entertainment International, Inc. and its subsidiaries. The Company
engages in the on-screen advertising business through National Cinema Network,
Inc.
AMCE is a Delaware corporation with its principal executive offices located
at 106 West 14th Street, Kansas City, Missouri 64105-1977. Its telephone number
at such address is (816) 221-4000.
13
<PAGE>
BUSINESS STRATEGY
The Company intends to expand its theatre circuit primarily by developing
new theatres in major markets in the United States and select international
markets. New theatres will primarily be megaplex theatres which will also be
equipped with SONY Dynamic Digital Sound-TM- (SDDS-TM-) and AMC LoveSeat-TM-
style seating (plush, high-backed seats with retractable armrests). Other
amenities may include auditoriums with TORUS-TM- Compound Curved Screens and
High Impact Theatre Systems-TM- (HITS-TM-), which enhance picture and sound
quality, respectively.
The Company's strategy of establishing megaplex theatres enhances attendance
and concessions sales by enabling it to exhibit concurrently a variety of motion
pictures attractive to different segments of the movie-going public. Megaplexes
also allow the Company to match a particular motion picture's attendance
patterns to the appropriate auditorium size (ranging from approximately 90 to
450 seats), thereby extending the run of a motion picture and providing superior
theatre economics. The Company believes that megaplex theatres enhance its
ability to license commercially popular motion pictures and to access
economically prime real estate sites due to its desirability as an anchor
tenant.
The Company believes that the megaplex format will create a new replacement
cycle for the industry. The new format raises moviegoers' expectations by
providing superior viewing lines, comfort, picture and sound quality as well as
increased choices of films and start times. The Company believes that consumers
will increasingly choose theatres based on the quality of the movie-going
experience rather than the location of the theatre. As a result, the Company
believes that older, smaller theatres will become obsolete as the megaplex
concept matures.
The Company believes that significant market opportunities exist for
development of modern megaplex and multiplex theatres in select international
markets. The theatrical exhibition business has become increasingly global and
box office receipts from international markets approximate those of the U.S.
market and are rising at a faster rate. In addition, the production and
distribution of feature films and demand for American motion pictures are
increasing in many countries. The Company believes that its experience in
developing and operating megaplex and multiplex theatres provides it with a
significant advantage in developing megaplex and multiplex facilities in
international markets and the Company intends to utilize this experience, as
well as its existing relationships with domestic motion picture studios, to
enter certain international markets. The Company's strategy in these markets is
to operate leased theatres and consider partnerships or joint ventures, where
appropriate, to share risk and leverage resources. Presently the Company's
activities in international markets are directed toward Japan, Portugal, Spain,
Hong Kong and Canada, which markets the Company believes are under screened.
THEATRICAL EXHIBITION INDUSTRY OVERVIEW
Motion picture theatres are the primary initial distribution channel for new
motion picture releases, and the Company believes that the theatrical success of
a motion picture is often the most important factor in establishing its value in
the cable television, videocassette and other ancillary markets. The Company
further believes that the emergence of new motion picture distribution channels
has not adversely affected attendance at theatres and that these distribution
channels do not provide an experience comparable to that of viewing a movie in a
theatre. The Company believes that the public will continue to recognize the
advantages of viewing a movie on a large screen with superior audio and visual
quality, while enjoying a variety of concessions and sharing the experience with
a larger audience.
Annual domestic theatre attendance has averaged approximately one billion
persons since the early 1960s. In 1996, estimated domestic attendance was 1.35
billion. Fluctuations and variances in year-to-year attendance are primarily
related to the overall popularity and supply of motion pictures.
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The theatrical exhibition industry in North America is comprised of over 400
exhibitors, approximately 250 of which operate four or more screens. Based on
the listing of exhibitors in the National Association of Theatre Owners (NATO)
1996-97 Encyclopedia of Exhibitions, as of May 1, 1996, the ten largest
exhibitors (in terms of number of screens) operated approximately 56% of the
total screens, with no one exhibitor operating more than ten percent of the
total screens.
RECENT NOTE OFFERING AND AMENDMENT TO CREDIT FACILITY
NOTE OFFERING. On March 19, 1997, AMCE sold $200 million aggregate
principal amount of 9 1/2% Senior Subordinated Notes due 2009 (the "Notes") in a
private transaction conforming with Rule 144A and Regulation S (the "Note
Offering"). The Notes were issued under an Indenture dated March 19, 1997 (the
"Note Indenture") between AMCE and The Bank of New York, as Trustee. Net
proceeds from the issuance of the Notes (approximately $193.8 million) were used
to reduce borrowings under AMCE's $425 million credit facility (the "Credit
Facility"). Amounts repaid under the Credit Facility will again be available for
borrowing thereunder, and AMCE intends to utilize this increased availability to
continue with its current expansion program.
Interest on the Notes is payable on March 15 and September 15 of each year,
commencing September 15, 1997. The Notes are redeemable at the option of AMCE,
in whole or in part, at any time on or after March 15, 2002 at 104.75% of the
principal amount thereof, declining ratably to 100% of the principal amount
thereof on or after March 15, 2006, plus in each case interest accrued to the
redemption date. Upon a change of control (as defined in the Note Indenture),
each holder of the Notes will have the right to require AMCE to repurchase such
holder's Notes at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The Notes are
subordinated to all existing and future senior indebtedness (as defined in the
Note Indenture) of AMCE.
AMCE has agreed to use its best efforts to (i) file and cause to become
effective by August 16, 1997, a registration statement relating to a registered
offer to exchange the Notes (the "Exchange Offer") for notes of AMCE with terms
identical in all material respects to the Notes and (ii) cause the Exchange
Offer to be consummated by September 15, 1997. If the Exchange Offer
registration statement is not declared effective by August 16, 1997, AMCE has
agreed that in lieu thereof it will use its best efforts to cause to become
effective by September 15, 1997 a shelf registration statement with respect to
the Notes. In the event that either (a) the Exchange Offer registration
statement is not filed on or prior to June 17, 1997, (b) the Exchange Offer
registration statement is not declared effective on or prior to August 16, 1997
or (c) the Exchange Offer is not consummated or a shelf registration statement,
with respect to the Notes, is not declared effective on or prior to September
15, 1997, the interest rate borne by the Notes will increase by 0.50% per annum
following June 17, 1997 in the case of clause (a) above, following August 16,
1997 in the case of clause (b) above and following September 15, 1997 in the
case of clause (c) above. The aggregate amount of such increase will in no event
exceed 1.00% per annum. Upon (x) the filing of the Exchange Offer registration
statement after June 17, 1997, (y) the effectiveness of the Exchange Offer
registration statement after August 16, 1997 or (z) the consummation of the
Exchange Offer or the effectiveness of a shelf registration statement, as the
case may be, after September 15, 1997, the interest rate borne by the Notes from
the date of filing, effectiveness or consummation, as the case may be, will be
reduced to 9 1/2%. The Exchange Offer registration statement was filed on June
13, 1997.
The Note Indenture contains certain covenants that, among other things,
restrict the ability of AMCE and its subsidiaries to: incur additional
indebtedness; pay dividends or make distributions in respect of their capital
stock; purchase or redeem capital stock; enter into transactions with
stockholders or certain affiliates; or consolidate, merge or sell all or
substantially all of AMCE's assets, other than in certain transactions between
AMCE and one or more of its wholly-owned subsidiaries and other than the Merger.
All of these limitations are subject to a number of important qualifications.
The Note Indenture does not impose any limitation on the incurrence by AMCE and
its subsidiaries of liabilities that are not considered "Indebtedness" under the
Note Indenture, such as those that would be incurred under
15
<PAGE>
certain sale/leaseback transactions; nor does the Note Indenture impose any
limitation on the amount of liabilities incurred by subsidiaries, if any, that
might be designated as Unrestricted Subsidiaries (as defined therein).
Furthermore, there are no restrictions on the ability of AMCE and its
subsidiaries to make advances to, or invest in, other entities (including
unaffiliated entities) and no restrictions on the ability of AMCE's subsidiaries
to enter into agreements restricting their ability to pay dividends or otherwise
transfer funds to AMCE. If the Notes attain "investment grade status" ( as
defined in the Note Indenture), the covenants in the Note Indenture limiting
AMCE's ability to incur indebtedness, pay dividends, acquire stock or engage in
transactions with affiliates will cease to apply.
The Notes have not been registered under the Securities Act and may not be
offered or sold in the United States or to or for the benefit of United States
persons absent registration or an applicable exemption from the registration
requirements of the Securities Act.
AMENDMENT TO CREDIT FACILITY. On April 10, 1997, the Company and its
lenders entered into an amendment and restatement of the Credit Facility, which
among other matters, extended the termination date of the Credit Facility to
2004, eliminated a covenant which had restricted the amount of capital
expenditures that the Company could incur during any fiscal year and modified
and added certain other financial covenants. See "Information About the
Company--Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
DURWOOD, INC.
DI is a holding company whose principal shareholders are Mr. Stanley H.
Durwood and AAE. Mr. Stanley H. Durwood owns 119,500, or 99%, of the 120,000
outstanding shares of DI Class A Stock, representing approximately 75% of the
voting power of DI, and AAE owns 40,784, or 100%, of the DI Class B Stock,
representing approximately 25% of the voting power of DI. AAE's partners are Mr.
Stanley H. Durwood and the Durwood Children. Mr. Stanley H. Durwood is the sole
director of DI and his son, Mr. Edward D. Durwood, is the managing general
partner of AAE. DI's principal asset consists of stock of AMCE and at present it
has no significant business activity other than the ownership of such stock of
AMCE. DI's principal executive offices are located at 106 West 14th Street,
Kansas City, Missouri 64105. Its telephone number at such address is (816)
221-4000.
MARKET VALUES AND DIVIDENDS
AMCE Common Stock is publicly traded and listed on the American Stock
Exchange ("AMEX") and the Pacific Stock Exchange.
None of the AMCE Class B Stock nor DI Class A Stock or DI Class B Stock has
an established public trading market. On May 3, 1996, the last trading date
preceding public announcement of the Durwood Family Settlement Agreement, the
reported last sale price of AMCE Common Stock on the AMEX was $25.75. On April
16, 1997, the day preceding announcement that the Merger Agreement had been
entered into, the reported last sale price of the AMCE Common Stock on the AMEX
was $20.00. On , the date preceding the date of this Proxy-- Information
Statement/Prospectus, the reported last sale price of AMCE Common Stock on the
AMEX was $ per share.
Except for a $1.14 per share special dividend paid in August 1992, AMCE has
not declared a dividend on its stock since fiscal 1989. DI has not declared a
dividend on its stock since fiscal 1988.
16
<PAGE>
SUMMARY FINANCIAL DATA
The following tables set forth certain historical and pro forma financial
data for the Company and DI. The summary financial data with respect to the
Company for the five fiscal years ended April 3, 1997 has been derived from the
Company's consolidated financial statements for such periods.
The summary financial data with respect to DI for the five fiscal years
ended April 3, 1997 has been derived from the audited financial statements of
DI.
The unaudited pro forma financial information of the Company as of and for
the fiscal year ended April 3, 1997 has been adjusted to give effect to the
Merger and Note Offering as set forth in the Notes to the Company's Condensed
Pro Forma Financial Statements included elsewhere herein. Such pro forma
information does not purport to represent what the Company's results of
operations would have been had the Merger and Note Offering occurred on the
dates presented or to project the Company's financial position or results of
operations for any future period.
The summary financial data presented herein should be read in conjunction
with the audited financial statements and other historical and pro forma
financial information of each of the Company and DI included elsewhere in this
Proxy--Information Statement/Prospectus and Management's Discussion and Analysis
of Financial Condition and Results of Operations for each of the Company and DI
included elsewhere herein.
17
<PAGE>
AMC ENTERTAINMENT INC.
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------------
APRIL 3, MARCH 28, MARCH 30, MARCH 31, APRIL 1,
1997(1)(2) 1996(1)(2) 1995(1)(2) 1994(1)(2) 1993(2)
----------- -------------- ----------- ------------ --------------
(IN THOUSANDS, EXCEPT STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Total revenues.................................. $ 749,597 $ 655,972 $ 563,344 $ 586,300 $ 403,775
Depreciation and amortization................... 59,803 43,886 37,913 38,048 28,175
Operating income................................ 53,145 68,669 51,029 60,736 26,670
Gain (loss) on disposition of assets............ (84) (222) (156) 296 9,638
Earnings before extraordinary item.............. 18,995 27,371 33,978 15,312 7,746
Net earnings.................................... 18,995 8,021(4) 33,978 15,312 1,263(3)
Preferred dividends............................. 5,907 7,000 7,000 538 256
BALANCE SHEET DATA
Cash, equivalents and investments............... $ 24,715 $ 10,795 $ 140,377 $ 151,469 $ 50,106
Total assets.................................... 718,213 483,458 522,154 501,276 374,102
Total debt (including capital lease
obligations).................................. 373,724 188,172 267,504 268,188 255,302
Stockholders' equity............................ 170,012 158,918 157,388 130,404 18,171
OTHER FINANCIAL DATA
EBITDA(5)....................................... $ 112,948 $ 112,555 $ 88,942 $ 98,784 $ 57,345
Cash flows provided by operating activities..... 134,074 96,847 44,366 63,680 29,062
Cash flows provided by (used in) investing
activities.................................... (283,917) (66,848) 3,664 (111,505) 4,594
Cash flows provided by (used in) financing
activities.................................... 163,982 (90,437) (9,116) 56,147 (21,022)
Capital expenditures............................ 253,380 120,796 56,403 10,651 8,786
STATISTICAL DATA (AT PERIOD END)
Number of theatres operated..................... 228 226 232 236 243
Number of screens operated...................... 1,957 1,719 1,630 1,603 1,617
Screens per theatre............................. 8.6 7.6 7.0 6.8 6.7
</TABLE>
18
<PAGE>
DURWOOD, INC.*
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------------------
APRIL 3, MARCH 28, MARCH 30, MARCH 31, APRIL 1,
1997(1)(2) 1996(1)(2) 1995(1)(2) 1994(1)(2) 1993(2)
----------- ----------- ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues........................................ $ 749,597 $ 655,972 $ 563,347 $ 586,305 $ 403,785
Depreciation and amortization......................... 59,447 43,537 37,569 37,701 27,834
Operating income...................................... 53,515 68,494 51,313 60,256 25,244
Gain (loss) on disposition of assets.................. (84) (220) (142) 296 9,627
Earnings before extraordinary item and minority
interest............................................ 19,514 26,541 35,355 20,847 7,723
Net earnings (loss)................................... 10,430 23 23,796 20,074 (526)
BALANCE SHEET DATA
Cash, equivalents and investments..................... $ 26,042 $ 12,888 $ 142,754 $ 152,979 $ 50,596
Total assets.......................................... 717,972 481,827 521,735 500,060 370,229
Total debt (including capital lease obligations)...... 373,724 188,172 267,548 268,233 255,346
Minority interest..................................... 102,015 109,721 109,285 104,859 2,758
Stockholders' equity.................................. 66,170 47,476 46,891 23,095 6,719
OTHER FINANCIAL DATA
EBITDA (5)............................................ $ 112,962 $ 112,031 $ 88,882 $ 97,957 $ 55,578
Cash flows provided by operating activities........... 126,218 89,998 38,453 65,132 27,144
Cash flows provided by (used in) investing
activities.......................................... (282,749) (66,998) 3,350 (111,047) 5,350
Cash flows provided by (used in) financing
activities.......................................... 169,904 (83,722) (2,022) 55,257 (19,412)
Capital expenditures.................................. 253,380 120,796 56,701 10,672 8,773
</TABLE>
- --------------
* Because AMCE is a majority owned subsidiary of DI, the information shown
includes the financial results of AMCE.
19
<PAGE>
<TABLE>
<CAPTION>
AMCE
PRO FORMA(6)
YEAR ENDED
APRIL 3, 1997
------------------------------
MERGER & NOTE
OFFERING COMBINED MERGER
------------------- ---------
(IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues............................................... $ 749,597 $ 749,597
Depreciation and amortization................................ 59,803 59,803
Operating income............................................. 53,145 53,145
Gain (loss) on disposition of assets......................... (84) (84)
Net earnings................................................. 13,275 18,995
Preferred dividends.......................................... 5,907 5,907
BALANCE SHEET DATA
Cash, equivalents and investments............................ $ 24,715 $ 24,715
Total assets................................................. 718,213 718,213
Total debt (including capital lease obligations)............. 373,724 373,724
Stockholders' equity......................................... 169,012 169,012
OTHER FINANCIAL DATA
EBITDA(5).................................................... $ 112,948 $ 112,948
Cash flows provided by operating activities.................. 134,074 134,074
Cash flows provided by (used in) investing activities........ (283,917) (283,917)
Cash flows provided by (used in) financing activities........ 163,982 163,982
Capital expenditures......................................... 253,380 253,380
</TABLE>
- --------------
(1) Fiscal 1997, 1996, 1995 and 1994 include the effects from the acquisition of
Exhibition Enterprises Partnership ("EEP") on May 28, 1993.
(2) Fiscal 1997 consists of 53 weeks. All other years have 52 weeks.
(3) Fiscal 1993 includes a $6,483,000 extraordinary loss equal to $.40 per
common share.
(4) Fiscal 1996 includes a $19,350,000 extraordinary loss equal to $1.15 per
common share.
(5) Represents operating income plus depreciation and amortization plus
estimated loss on future disposition of assets. EBITDA is a financial
measure commonly used in the Company's industry and should not be construed
as an alternative to operating income (as determined in accordance with
GAAP). EBITDA as determined by the Company may not be comparable to EBITDA
as reported by other companies. In addition, EBITDA is not intended to
represent cash flow and does not represent the measure of cash available for
discretionary uses. EBITDA is a non-GAAP measure, but has been used by
lenders and stockholders as additional information for estimating the
Company's value and evaluating its ability to service debt.
(6) The pro forma Statement of Operations Data for the fiscal year ended April
3, 1997 give effect to the Merger and Note Offering described elsewhere
herein, as though such transactions had occurred at the beginning of the
period. The pro forma Balance Sheet Data gives effect to the Merger as
though it had occurred on April 3, 1997. See the Company's Condensed Pro
Forma Financial Statements and the Notes thereto included elsewhere in this
Proxy--Information Statement/Prospectus.
20
<PAGE>
PRO FORMA PER SHARE DATA
The following table sets forth the income from continuing operations and
book value per common share of AMCE and DI for the period indicated. This
comparison should be read in conjunction with the pro forma selected financial
statements and the historical financial statements and the notes thereto
included elsewhere herein. Neither AMCE nor DI paid any cash dividends on their
common shares during the periods indicated. AMCE pays quarterly dividends of
$.4375 per share on its Convertible Preferred Stock.
<TABLE>
<CAPTION>
YEAR ENDED
-------------
APRIL 3, 1997
-------------
<S> <C>
INCOME PER SHARE FROM CONTINUING OPERATIONS
AMCE Historical:
Primary.................................................................... $ .74
Fully diluted.............................................................. .73
Pro Forma AMCE for Merger:
Primary.................................................................... $ .74
Fully diluted.............................................................. .73
Pro Forma AMCE for Merger & Note Offering:
Primary.................................................................... $ .42
Fully diluted.............................................................. .41
DI Historical:
Primary.................................................................... $ 63.96
Fully diluted.............................................................. 63.24
Equivalent Pro Forma DI (excluding Note Offering):
Primary.................................................................... $ .71(1)
Fully diluted.............................................................. .70(1)
BOOK VALUE PER COMMON SHARE
AMCE Historical.............................................................. $ 4.93
Pro Forma AMCE for Merger.................................................... 4.87
Pro Forma AMCE for Merger & Note Offering.................................... 4.87
DI Historical................................................................ $ 422.91
Equivalent Pro Forma DI (excluding Note Offering)............................ 4.87(1)
</TABLE>
- --------------
(1) Reflects the effect to DI of the pre-Merger activities provided for in the
Pre-Merger Action Plan (Exhibit A to the Merger Agreement). Does not
consider the Note Offering and its effect on DI.
21
<PAGE>
RISK FACTORS
In connection with the transactions contemplated by this Proxy--Information
Statement/Prospectus, the following should be considered.
CONTROLLING STOCKHOLDERS
Voting control of AMCE is vested in the holders of AMCE Class B Stock,
subject to the right of holders of AMCE Common Stock to elect 25% of the members
of the AMCE Board. As of May 19, 1997, Mr. Stanley H. Durwood and the Durwood
Children, through DI, beneficially owned all of the shares of outstanding AMCE
Class B Stock and 2,641,951 shares of outstanding AMCE Common Stock (38.8% of
the issued and outstanding shares of AMCE Common Stock as of such date), which
in the aggregate represented 96.5% of the voting interest in AMCE as of such
date. Therefore, Mr. Stanley H. Durwood has the ability to elect or remove a
majority of the AMCE Board. See "Information about the Company-- Management of
the Company" and "The Merger--General Effects of the Merger." Mr. Stanley H.
Durwood has recently undergone surgery for esophageal cancer.
The 1989 Trust and the 1992 Trust hold approximately 75% of the voting power
of the outstanding capital stock of DI. The 1992 Trust is the record owner of
such DI shares, and has issued voting trust certificates to the 1989 Trust. Mr.
Stanley H. Durwood is the sole acting trustee of these trusts; the named
successor trustees under Mr. Stanley H. Durwood's trusts are Messrs. Charles J.
Egan, Jr., a director of AMCE, and Raymond F. Beagle, Jr., general counsel to
the Company. Under the terms of the 1992 Trust, Mr. Durwood has all voting
powers with respect to shares held therein during his lifetime. Thereafter, all
voting rights with respect to such shares vest in his successor trustees and any
additional trustees whom they might appoint, who shall exercise such rights by
majority vote. Unless revoked by Mr. Stanley H. Durwood or otherwise terminated
or extended in accordance with its terms, the 1992 Trust will terminate in the
year 2030.
After giving effect to the Merger and Secondary Offering (and disregarding
shares which may be acquired by Mr. Stanley H. Durwood upon the exercise of
employee stock options and shares which the Durwood Children might acquire under
the Share Adjustment), (i) Mr. Stanley H. Durwood will own approximately 4.5
million shares of AMCE Class B Stock, and (ii) the Durwood Children will own an
aggregate of approximately 6.3 million shares of AMCE Common Stock. Based on the
number of shares outstanding as of May 19, 1997 (a) such shares of AMCE Class B
Stock to be owned by Mr. Stanley H. Durwood will be 100% of the outstanding
shares of such class, will entitle him to elect a majority of the AMCE Board and
will represent 77.0% of the voting interest in AMCE (70.4% assuming full
conversion of Convertible Preferred Stock), and (b) the AMCE Common Stock to be
owned by the Durwood Children will represent 46.6% of the shares of AMCE Common
Stock (33.1% assuming full conversion of Convertible Preferred Stock),
representing 10.7% of the voting interest in AMCE (9.8% assuming full conversion
of Convertible Preferred Stock).
As a result of their ownership of shares of AMCE Common Stock after the
Merger and because attendance at stockholders meetings generally is less than
100%, any corporate action requiring the approval of the holders of AMCE Common
Stock voting as a class may as a practical matter require the approval of the
Durwood Children instead of Mr. Stanley H. Durwood, as is presently the case.
Matters requiring approval of holders of the AMCE Common Stock voting as a class
include any proposed amendment to AMCE's Certificate of Incorporation changing
the authorized number or par value of shares of AMCE Common Stock or altering
the powers, preferences or special rights of the shares of such class so as to
affect them adversely. See "Comparison of Rights of Holders of AMCE Stock and DI
Stock--Voting Rights--Requisite Voting Percentage in General and in Certain
Extraordinary Matters."
Holders of AMCE Common Stock are entitled to elect 25% of the AMCE Board. As
stated above, the Durwood children will hold approximately 47% of the shares of
AMCE Common Stock after the Merger and Secondary Offering. For a period of three
years after the Effective Time of the Merger, the Durwood
22
<PAGE>
Children will grant an irrevocable proxy to vote their shares of AMCE Common
Stock for each candidate to the AMCE Board in the same proportion as the
aggregate votes cast by all other stockholders not affiliated with AMCE, its
directors and officers. Also, the Durwood Children will agree during such period
not to become a member of any group (other than a group of Durwood Family
Stockholders), solicit proxies or enter into any arrangement or agreement with
respect to voting shares. See "The Merger-- Material Terms of the Merger--The
Stock Agreement."
RESTRICTIONS ON TRANSFER
Under the Stock Agreement, whose execution by the Durwood Family
Stockholders is a condition to the Merger, AMCE will have a right of first
refusal for a period of three years with respect to any shares of AMCE Common
Stock that the Durwood Children wish to sell in a transaction exempt from
registration under the Securities Act, except for such shares sold in a broker's
transactions. During such period, the Durwood Family Stockholders may not
transfer stock by gift to any person or entity unless such person or entity
agrees to be bound by the Stock Agreement, provided that each Durwood Family
Stockholder may transfer up to 5% of the shares of AMCE stock he or she receives
in the Merger to certain charitable assignees (as defined in the Stock
Agreement). Under the Stock Agreement, each Durwood Family Stockholder generally
must agree that he or she will not sell more than 50% of his or her AMCE stock
(or, in the case of Mr. Stanley H. Durwood, an additional amount) for two years.
See "The Merger--Material Terms of the Merger--The Stock Agreement." Pursuant to
the Indemnification Agreement, a portion of the shares received by each Durwood
Family Stockholder must be deposited in escrow under an Escrow Agreement. See
"The Merger Agreement--Material Terms of the Merger--The Indemnification
Agreement--Other Agreements."
The Durwood Family Stockholders may be considered "affiliates" of DI and
AMCE as such term is defined under the Securities Act. Shares of AMCE received
in the Merger by those who are affiliates will be subject to applicable
restrictions under Rule 145 and Rule 144 promulgated under the Securities Act,
which are summarized below.
Prior to the expiration of one year after the Merger, Durwood Family
Stockholders who were affiliates of DI (whether or not they are also affiliates
of AMCE) may publicly sell securities of AMCE acquired in the Merger only in a
registered offering or in compliance with Rule 144. Generally, a sale will
comply with Rule 144 only if (i) AMCE has filed all reports required of it under
Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") for a period of twelve months preceding the date of any such sale, (ii)
the number of securities sold by a person does not exceed the volume limitations
imposed by Rule 144 (generally, the greater of the average weekly reported
trading volume in AMCE Common Stock during the four calendar weeks preceding the
filing of the notice discussed below or 1% of the outstanding shares of AMCE
Common Stock may be sold during any three month period by a person and those
with whom he or she may be acting in concert), (iii) the sale is made in a
"broker's transaction", as defined in Rule 144, or in a transaction directly
with a "market maker", as permitted by such Rule, and (iv) notice of the sale is
filed with the Commission and the AMEX concurrently with the placement of any
order with a broker or the execution of a transaction with a market maker.
Commencing one year after the date of the Merger, Durwood Family
Stockholders who were affiliates of DI but who are not then affiliates of AMCE
may publicly sell securities acquired in the Merger without restriction under
Rule 145 or Rule 144 provided that AMCE has filed all reports required of it
under Section 13 of the Exchange Act for a period of twelve months preceding the
date of any such sale.
Commencing two years after the date of the Merger, Durwood Family
Stockholders who were affiliates of DI but who are not then affiliates of AMCE
may publicly sell securities acquired in the Merger without restriction under
Rule 145 or Rule 144.
23
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Based on the number of shares outstanding on May 19, 1997, upon consummation
of the Merger (and disregarding any fractional shares which are paid for in cash
in the Merger), there will be 12,945,639 shares of AMCE Common Stock
outstanding, 5,015,657 shares of AMCE Class B Stock outstanding, which are
convertible into a like number of shares of AMCE Common Stock, and 3,175,800
shares of Convertible Preferred Stock outstanding, which are presently
convertible into 5,475,079 shares of AMCE Common Stock. Of the shares of AMCE
Common Stock outstanding or issuable upon conversion of the Convertible
Preferred Stock, approximately 9.6 million will be freely tradeable without
restriction or registration under the Securities Act. Additional shares of AMCE
Common Stock, including shares issuable upon exercise of options, will also
become eligible for sale in the public market from time to time. See
"Restrictions on Resale." Although the Special Committee and the AMCE Board
believe that the Merger and Secondary Offering will increase the public float
and liquidity, which may reduce the volatility of daily stock price changes,
narrow the bid/asked spread and increase institutional investor interest in AMCE
Common Stock (see "The Merger--Report of Advisors--Reasons for
Recommendations"), sales of substantial amounts of AMCE Common Stock in the
public market pursuant to Rule 144 or otherwise, or even the potential of such
sales, could adversely affect the prevailing market price of AMCE Common Stock
and impair AMCE's ability to raise additional capital through the sale of equity
securities.
THE AMCE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING; RECORD DATE; VOTING RIGHTS
This Proxy--Information Statement/Prospectus is furnished in connection with
the solicitation of the enclosed proxy by the AMCE Board for use at the AMCE
Special Meeting to be held at 2:00 p.m. local time on July 29, 1997, at the
offices of Lathrop & Gage L.C., 2345 Grand Avenue, 24th Floor, Kansas City,
Missouri. This Proxy--Information Statement/Prospectus and the accompanying
proxy are being mailed to all stockholders of AMCE (including holders of
Convertible Preferred Stock) on or about June 25, 1997.
The AMCE Board has established June 19, 1997, as the AMCE Record Date for
the AMCE Special Meeting. Only stockholders of record at the close of business
on the AMCE Record Date are entitled to notice of the AMCE Special Meeting, and
only holders of AMCE Common Stock and AMCE Class B Stock on the AMCE Record Date
are entitled to vote at the AMCE Special Meeting and any adjournments thereof.
At the close of business on the AMCE Record Date, there were outstanding
[6,804,296] shares of AMCE Common Stock and 11,157,000 shares of AMCE Class B
Stock. At the AMCE Special Meeting, the shares of AMCE Common Stock and AMCE
Class B Stock shall vote together as a single class, with each outstanding share
of AMCE Common Stock having one vote per share and each outstanding share of
AMCE Class B Stock having ten votes per share.
PURPOSE OF THE AMCE SPECIAL MEETING
At the AMCE Special Meeting, AMCE stockholders eligible to vote thereat will
be asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement. A copy of the Merger Agreement is attached as Annex 1 to this
Proxy--Information Statement/Prospectus. If the Merger Agreement receives the
requisite approval of stockholders of AMCE and DI (including approval of the
holders of a majority of shares of AMCE Common Stock present or represented by
proxy and voting at the AMCE Special Meeting, other than those shares held by
DI, the Durwood Family Stockholders, their spouses, their children living in the
same household and directors and officers of AMCE), (i) shares of AMCE Common
Stock and Convertible Preferred Stock held by AMCE stockholders other than DI
will remain issued and outstanding and will not be exchanged, (ii) each share of
AMCE Common Stock and AMCE Class B Stock held by DI will be canceled, (iii) each
share of DI Class A Stock presently held by
24
<PAGE>
Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust will be converted into
and exchanged for 32.142857 shares of AMCE Class B Stock, so that the 119,500
shares of DI Class A Stock presently held by Mr. Stanley H. Durwood, the 1989
Trust or the 1992 Trust will be convertible into and exchangeable for an
aggregate of 3,841,071 shares of AMCE Class B Stock, (iv) each share of DI Class
A Stock presently held by persons other than Mr. Stanley H. Durwood, the 1989
Trust or the 1992 Trust will be converted into and exchanged for 32.142857
shares of AMCE Common Stock, so that the 500 shares of DI Class A Stock
presently held by persons other than Mr. Stanley H. Durwood, the 1989 Trust or
the 1992 Trust will be convertible into and exchangeable for an aggregate of
16,071 shares of AMCE Common Stock, (v) each share of DI Class B Stock to be
held by Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust will be
converted into and exchanged for 243.767528 shares of AMCE Class B Stock, so
that the 4,818.4664 shares of DI Class B Stock to be held by Mr. Stanley H.
Durwood, the 1989 Trust or the 1992 Trust will be convertible into and
exchangeable for an aggregate of 1,174,586 shares of AMCE Class B Stock, and
(vi) each share of DI Class B Stock to be held by the Durwood Children will be
converted into and exchanged for 243.767341 shares of AMCE Common Stock, so that
the 35,965.5336 shares of DI Class B Stock to be held by the Durwood Children
will be convertible into and exchangeable for an aggregate of 8,767,223 shares
of AMCE Common Stock.
VOTE REQUIRED FOR THE MERGER
Under AMCE's Certificate of Incorporation and the DGCL, the approval of the
holders of a majority of the votes of outstanding shares of AMCE Common Stock
and AMCE Class B Stock entitled to notice of and to vote at the AMCE Special
Meeting, voting as a single class, is required to approve the Merger Agreement,
with each share of AMCE Common Stock being entitled to one vote and each share
of AMCE Class B Stock being entitled to ten votes. In determining whether the
Merger has received the vote required under the DGCL, abstentions and broker
non-votes will have the effect of a negative vote. In addition, upon the
recommendation of the Special Committee, a condition to the Merger is that the
Merger Agreement also be approved by the holders of a majority of the shares of
AMCE Common Stock present or represented by proxy and voting at the AMCE Special
Meeting, other than those held by DI, the Durwood Family Stockholders, their
spouses, their children sharing the same house and directors and officers of
AMCE; if the Merger is not so approved, the Merger Agreement will be terminated
and the proposed Merger abandoned. Under Delaware case law, an abstention is
regarded as a voluntary decision not to vote, and, accordingly, in determining
whether the special approval requirement referred to in the preceding sentence
is satisfied, only yeas and nays will be counted and abstentions and broker
non-votes will not be counted.
THE SPECIAL COMMITTEE AND THE AMCE BOARD RECOMMEND THAT THE STOCKHOLDERS OF
AMCE VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
PROXIES
Properly executed and dated proxies which are received by AMCE prior to the
AMCE Special Meeting will be voted in accordance with the instructions thereon.
If a proxy is received with no instructions given with respect to the matters to
be acted upon, the shares represented by the proxy will be voted for the
proposal to approve and adopt the Merger Agreement. A proxy may be revoked at
any time before being voted by written notice to such effect received by the
Secretary of AMCE before the proxy is voted at the Special Meeting, by delivery
to AMCE of a subsequently dated proxy or by a vote cast in person at the AMCE
Special Meeting by written ballot.
A proxy confers discretionary authority with respect to the voting of the
shares represented thereby on any other business that may properly come before
the meeting and any adjournments thereof. The AMCE Board is not aware that any
such other business is to be presented for action at the meeting and does not
itself intend to present any such other business. However, if any such other
business does come before the meeting, shares represented by proxies given
pursuant to this solicitation will be voted
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by the persons named in the proxy in accordance with their best judgment. A
proxy also confers discretionary authority on the persons named therein to vote
on matters incident to the conduct of the meeting.
COSTS OF SOLICITATION
AMCE and DI will share all of the expenses in connection with printing this
Proxy--Information Statement/Prospectus. The costs of solicitation of proxies
also will be shared by AMCE and DI. Mr. Stanley H. Durwood and Delta have agreed
to indemnify AMCE against all of DI's expenses and for 50% of AMCE's expenses in
connection with the Merger (subject to offset for certain Credit Amounts). See
"The Merger--Material Terms of the Merger--Indemnification Agreement--Other
Indemnification" and "--Other Agreements." If the Merger is not consummated for
any reason other than as a result of a termination by the AMCE Board for a
Specified Reason or Without Cause (as such terms are defined in the Merger
Agreement), DI will be responsible for all of its expenses and all of AMCE's
expenses; if the Merger is terminated for a Specified Reason or Without Cause,
DI shall be responsible for all of its expenses and 50% of AMCE's expenses. See
"The Merger--Material Terms of the Merger--The Merger Agreement--Merger
Expenses." AMCE will reimburse brokers, fiduciaries, custodians and other
nominees for reasonable out-of-pocket expenses incurred in sending this
Proxy--Information Statement/ Prospectus and other proxy materials to, and
obtaining instructions relating to such materials from, beneficial owners of
AMCE Common Stock.
AMCE has retained D.F. King & Co., Inc. to provide proxy solicitation
services in connection with the AMCE Special Meeting. AMCE will reimburse D.F.
King & Co., Inc.'s expenses in connection with its services and pay it a fee
consisting of an $8,000 base fee and reimbursement of out of pocket expenses.
AMCE stockholder proxies also may be solicited by directors, executive officers
or employees of AMCE in person, by letter or by telephone or telegram. No
additional compensation will be paid to those persons for such service.
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THE MERGER
BACKGROUND OF THE MERGER
APPOINTMENT OF SPECIAL COMMITTEE. On October 5, 1994, the AMCE Board formed
the Special Committee, consisting of Messrs. Charles J. Egan, Jr. and Paul E.
Vardeman, the only two members of the AMCE Board at the time who were not
Durwood Family Stockholders or employees of AMCE, to review and consider the
possible merger of DI into AMCE and certain related transactions, which included
the Secondary Offering of shares of AMCE Common Stock to be received in the
Merger by the Durwood Family Stockholders. If the Special Committee considered
the Merger to be in the best interests of AMCE and its unaffiliated
stockholders, it was to negotiate the terms of the Merger and related
transactions and to make recommendations to the full AMCE Board in this
connection. The Special Committee was given the full power and authority of the
AMCE Board to reject the Merger.
As more fully described below, the Special Committee recommended that the
New Independent Directors approve and that the full AMCE Board approve and adopt
the Merger Agreement relating to the Merger and recommend that AMCE stockholders
approve and adopt the Merger Agreement. The Special Committee also recommended
that the New Independent Directors and the full AMCE Board approve certain
related agreements and take the necessary steps to register the sale in the
Secondary Offering of certain of the shares of AMCE Common Stock to be received
in the Merger by the Durwood Family Stockholders.
ORGANIZATION AND OWNERSHIP OF AMCE AND DI. AMCE was formed in 1983 as the
result of a reorganization involving DI and AMC. Prior to the reorganization, DI
owned approximately 99% of American Multi-Cinema, Inc.'s capital stock.
Following the reorganization and related transactions, including the offering to
the public of shares of AMCE Common Stock, DI owned 100% of AMCE's Class B Stock
and approximately 43% of AMCE's Common Stock. As of May 19, 1997, DI owned 38.8%
of the outstanding AMCE Common Stock and 100% of the outstanding AMCE Class B
Stock, representing in the aggregate 96.5% of the combined voting power of the
outstanding shares of AMCE Common Stock and AMCE Class B Stock as of such date.
DI was formed in 1947. In 1982, Mr. Stanley H. Durwood was DI's sole
shareholder. In that year, Mr. Stanley H. Durwood recapitalized DI and exchanged
all of his DI stock for 120,000 shares of DI Class A Stock and 40,784 shares of
DI Class B Stock. The shares of DI Class A Stock are entitled to preferences on
liquidation aggregating $450 per share, for a total of $54 million.
Following DI's recapitalization, Mr. Stanley H. Durwood gave 25% of his DI
Class B shares to the Durwood Children in equal amounts. Mr. Stanley H. Durwood
and each of his children then contributed all of their DI Class B shares to AAE.
In exchange for the contribution of their DI Class B shares to AAE, the Durwood
Children received equal 1/6 interests in AAE as general partners. In exchange
for his contribution, Mr. Stanley H. Durwood received a preferred limited
partnership interest in AAE having a fixed value on liquidation, plus a right to
an annual cumulative distribution equal to 14% of this value. Upon liquidation
of AAE, Mr. Stanley H. Durwood is entitled to receive partnership assets worth
the current value of his preferred limited partnership share.
Prior to December 26, 1991, the Company engaged AAE for the purposes of
executing film license contracts and providing related accounting and financial
management services. Effective December 26, 1991, the Company began to execute
film rental agreements directly with distributors and stopped using AAE for such
services. In 1992, AAE ceased all business activity and since then has been
unable to meet its annual distribution obligation to Mr. Stanley H. Durwood,
which continues to accumulate.
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Chart I below illustrates how Mr. Stanley H. Durwood and his children hold
their interests in AMCE indirectly through two entities. The Durwood Family
Stockholders own interests in AAE which, together with Harvard College and the
1989 Trust and 1992 Trust, owns DI, which in turn owns 38.8% of the outstanding
AMCE Common Stock and 100% of the outstanding AMCE Class B Stock as of May 19,
1997.
[GRAPH]
(THE GRAPHIC MATERIAL SET FORTH AT THIS POINT IS A CHART WHICH SHOWS THE CURRENT
OWNERSHIP STRUCTURE OF AMCE. DURWOOD, INC. IS SHOWN AS THE PRINCIPAL STOCKHOLDER
OF AMCE, OWNING 2,641,951 SHARES (OR 38.8% OF AMCE COMMON STOCK) AND 11,157,000
SHARES (OR 100%) OF AMCE CLASS B STOCK. THE OWNERS OF DURWOOD, INC. ARE SHOWN AS
AMERICAN ASSOCIATED ENTERPRISES, OWNING 40,784 SHARES OF DI CLASS B STOCK,
HARVARD COLLEGE, OWNING 500 SHARES OF DI CLASS A STOCK, AND THE 1989 AND 1992
TRUSTS, OWNING 119,500 SHARES OF DI CLASS A STOCK. THE OWNERS OF AMERICAN
ASSOCIATED ENTERPRISES ARE SHOWN AS THE 1989 AND 1992 TRUSTS, OWNING A PREFERRED
LIMITED PARTNERSHIP INTEREST, AND THE DURWOOD CHILDREN, OWNING GENERAL
PARTNERSHIP INTERESTS.)
As can be seen in Chart I, the Durwood Family Stockholders do not hold AMCE
stock directly. Each holds an interest in AAE and (except for Mr. Stanley H.
Durwood, who has a direct interest through the 1989 Trust and the 1992 Trusts)
an indirect interest in DI, which holds AMCE Common Stock and AMCE Class B
Stock. There is no public market for interests in AAE or DI and these holdings
are essentially illiquid. In addition, an individual member of the Durwood
family has no real ability by his or her decision alone to sell the shares of
AMCE Common Stock or AMCE Class B Stock that he or she indirectly owns.
GENESIS OF PROPOSAL FOR THE MERGER AND SECONDARY OFFERING. In the spring of
1994, the Durwood Children began suggesting to Mr. Stanley H. Durwood that AAE
should be liquidated and the AMCE stock held by DI distributed in accordance
with the economic interests of DI's shareholders as then reflected in the value
of the AMCE shares which DI held. The reasons the Durwood Children sought these
steps were to terminate AAE's escalating obligations to Mr. Stanley H. Durwood,
which diminished the value of their interests in AMCE, and to eliminate AAE and
DI as separate legal entities, thereby enabling the Durwood Family Stockholders
to hold their interests in AMCE directly (in the form of a
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marketable security) rather than indirectly through ownership of stock of DI or
partnership interests in AAE. After lengthy and difficult negotiations between
Mr. Stanley H. Durwood and the Durwood Children involving resolution of
valuation issues and other matters involving the relationships among the
Company, Mr. Stanley H. Durwood and the Durwood Children, a proposal was
developed whereby AAE was to be liquidated (see Chart II below) and DI was to be
merged into AMCE (see Chart III below). The result of these transactions would
be that the Durwood Family Stockholders would hold their interests in AMCE stock
directly and would then be able to make a public sale of all or part of these
interests. AMCE was asked to consider engaging in the Merger and related
transactions.
Chart II shows the structure following the liquidation of AAE but prior to
the Merger. Besides the elimination of AAE, Chart II also reflects the
conversion of 6,141,343 shares of AMCE Class B Stock into AMCE Common Stock
pursuant to the terms of the AMCE Class B Stock.
[GRAPH]
(THE GRAPHIC MATERIAL SET FORTH AT THIS POINT IS A CHART WHICH SHOWS THE
OWNERSHIP STRUCTURE OF AMCE AFTER GIVING EFFECT TO THE LIQUIDATION OF AMERICAN
ASSOCIATED ENTERPRISES AND THE CONVERSION OF 6,141,343 SHARES OF AMCE CLASS B
STOCK INTO 6,141,343 SHARES OF AMCE COMMON STOCK. DURWOOD, INC. IS SHOWN AS THE
PRINCIPAL STOCKHOLDER OF AMCE, OWNING 8,783,294 SHARES OF AMCE COMMON STOCK AND
5,015,657 SHARES OF AMCE CLASS B STOCK. THE OWNERS OF DURWOOD, INC. ARE SHOWN AS
THE DURWOOD CHILDREN, OWNING 35,965.5331 SHARES OF DI CLASS B STOCK, THE 1989
AND 1992 TRUSTS, OWNING 119,500 SHARES OF DI CLASS A STOCK AND 4,818.4664 SHARES
OF DI CLASS B STOCK, AND HARVARD COLLEGE, OWNING 500 SHARES OF DI CLASS A
STOCK.)
Chart III shows the ownership structure after the Merger. By acquiring DI in
the Merger, AMCE will receive the same number of shares of AMCE Common Stock and
AMCE Class B Stock as AMCE will issue in the Merger to stockholders of DI
(except for fractional shares). Accordingly, the aggregate number of outstanding
shares of AMCE will not change as a result of the Merger, although the number of
shares of AMCE Common Stock will increase and the number of shares of AMCE Class
B Stock will decrease. However, as a result of the Merger (and the conversion of
AMCE Class B Stock into AMCE Common Stock immediately prior thereto and in
connection therewith), the percentage of shares of outstanding AMCE Common Stock
held by unaffiliated stockholders will decrease from 61.2% to 32.3%,
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based on shares outstanding as of May 19, 1997, and the voting interest in AMCE
of unaffiliated stockholders will increase from 3.5% as of such date to 6.6%
after the Merger.
(THE GRAPHIC MATERIAL SET FORTH AT THIS POINT IS A CHART WHICH SHOWS THE
OWNERSHIP STRUCTURE OF AMCE AFTER GIVING EFFECT TO THE MERGER. THE PRINCIPAL
STOCKHOLDERS OF AMCE ARE SHOWN AS THE DURWOOD CHILDREN, OWNING 8,767,223 SHARES
OF AMCE COMMON STOCK, HARVARD COLLEGE, OWNING 16,071 SHARES OF AMCE COMMON
STOCK, AND THE 1989 AND 1992 TRUSTS, OWNING 5,015,657 SHARES OF AMCE CLASS B
STOCK.)
Because Mr. Stanley H. Durwood, Chairman of the Board of AMCE and its
principal stockholder, Mr. Edward D. Durwood and other Durwood Family
Stockholders are partners in AAE and indirectly owners of DI and would also be
sellers in a secondary offering, the AMCE Board, by unanimous written consent on
October 5, 1994, established the Special Committee composed of the only two
members of the AMCE Board at that time who were not Durwood Family Stockholders
or employees of AMCE.
Preliminary drafts of a merger agreement and related documents were prepared
by counsel for the Company in consultation with management and provided to the
Special Committee and representatives of the Durwood Children. Generally, these
documents provided for (i) the termination of AAE, (ii) the merger of DI into
AMCE, (iii) a registration rights agreement providing for one demand
registration of shares received by the Durwood Family Stockholders in the
Merger, and (iv) a stock agreement imposing certain obligations and limitations
on the Durwood Children with respect to such matters as the solicitation of
proxies and the voting and sale of shares received by them in the Merger. These
drafts contemplated that AMCE would pay its expenses incurred in connection with
the Merger and its internal expenses incurred in connection with a secondary
offering by the Durwood Family Stockholders.
INITIAL ACTIONS BY THE SPECIAL COMMITTEE. The Special Committee held its
initial meeting on October 11, 1994. The Special Committee retained Hughes
Hubbard & Reed LLP as Special Counsel. It also retained Furman Selz as financial
advisor initially to assist in the valuation of DI and to advise the Special
Committee concerning the AMCE/DI exchange ratio in the Merger and the benefits
to AMCE and its unaffiliated stockholders of the Merger. Subsequently, Furman
Selz also advised the Special Committee on the terms of the Secondary Offering.
The Special Committee chose Furman Selz because the firm is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities
and valuations for other corporate purposes, has considerable expertise in the
entertainment industry and one of the members of the Special Committee had a
favorable prior experience with Furman Selz.
KPMG Peat Marwick LLP ("KPMG") was also retained to assist in connection
with the Special Committee's review of DI and its subsidiaries and certain
accounting aspects of the Merger.
In this initial consideration, the Special Committee saw important benefits
to AMCE and its unaffiliated stockholders from the simplification of the
ownership structure of the Company through the Merger. The Special Committee was
also of the view that by increasing the float and liquidity of the AMCE Common
Stock, a secondary offering might make it easier for stockholders to sell their
shares or buy additional ones (because there would be more potential buyers and
sellers and more shares available to buy and sell), might make the market price
of the stock less volatile and might narrow the bid/asked spread.
On this preliminary basis, the Special Committee believed it advisable to
proceed with its investigation of DI and begin the negotiation of the terms of
the Merger and the Secondary Offering.
SUBSEQUENT MEETINGS OF THE SPECIAL COMMITTEE. On November 10, 1994, the
Special Committee received a preliminary report from KPMG on the results to date
of their limited procedures performed with respect to DI and its subsidiaries,
excluding the Company. The procedures dealt principally with assets and
liabilities that it was later agreed were to be removed from DI and not be
acquired or assumed by AMCE in the Merger.
Negotiations concerning the Merger were then suspended while Mr. Stanley H.
Durwood and the Durwood Children conducted further lengthy discussions
concerning the value of their interests in DI and AAE and negotiated the number
of shares that should be allocated to the Durwood Children and Mr. Stanley H.
Durwood in a merger between DI and AMCE.
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On July 18, 1995, following resumption of negotiations concerning the
Merger, the Special Committee met and identified several aspects of the Merger
and the Secondary Offering that would be of major importance to it and that it
would seek in the negotiations:
- At the time of the Merger, DI should have as few assets (apart from AMCE
capital stock) as possible. This would make valuation of DI easier.
- AMCE should be indemnified by Mr. Stanley H. Durwood and/or members of his
family for any liability resulting from a detailed set of representations,
including representations concerning DI and actions taken prior to the
Merger by DI and AAE in their restructuring.
- AMCE should not indemnify Mr. Stanley H. Durwood for any breaches of
AMCE's representations.
- Parameters for the Secondary Offering acceptable to the Special Committee
should be finalized prior to signing the Merger Agreement.
- Mr. Stanley H. Durwood and/or the Durwood Children should bear part of
AMCE's expenses relating to the Merger and the Secondary Offering.
- Because of the importance of the Secondary Offering to AMCE and its
unaffiliated stockholders, Mr. Stanley H. Durwood and/or the Durwood
Children should make a cash payment to AMCE and bear all of AMCE's
expenses if the Merger was consummated but the Secondary Offering was not
for certain reasons.
- The Merger should be subject to approval by the holders of a majority of
the AMCE Common Stock held by persons not affiliated with the management
of AMCE or the Durwood Family Stockholders voting on the Merger.
At meetings on August 10, 16 and 21, 1995, the Special Committee met to
discuss the major tasks involved in the Merger and Secondary Offering and to
review the Merger Agreement and Indemnification Agreement. See "Material Terms
of the Merger" for a summary of the terms of these agreements.
On August 22, 1995, the Special Committee received comments from counsel for
AMCE on the draft agreements. In addition, the Special Committee was briefed on
the status of preliminary settlement negotiations relating to the Derivative
Action. The Committee was told that among the possible settlement provisions
being discussed was a requirement that DI merge into AMCE and that the Durwood
Family Stockholders sell shares of AMCE Common Stock to the public.
On August 24, 1995, the Special Committee met to discuss the nature of the
reimbursement of Company expenses and other payments it would seek from the
Durwood Family Stockholders if the Merger occurred but the Secondary Offering
did not occur. The Special Committee was also advised by counsel for the Durwood
Family Stockholders that the Durwood Family Stockholders needed to discuss
further certain issues associated with the Secondary Offering and the
restructuring of DI and the allocation of the costs of the transactions among
the Durwood Family Stockholders.
On January 22, 1996, Mr. Stanley H. Durwood tentatively agreed with the
Durwood Children, in the context of a comprehensive settlement of disputed
issues between them respecting the Merger, that he would pay any of AMCE's
expenses of the proposed merger and secondary offering that were allocated to DI
or, in certain instances, the Durwood Family Stockholders, in the Merger
Agreement to the extent that such expenses exceeded certain assets of Delta at
the Effective Time of the Merger.
Between January 22 and May 3, 1996, the Durwood Family Stockholders
circulated written drafts of an agreement (the "Durwood Family Settlement
Agreement"), which was executed on May 3, 1996 by the last of the parties to
sign. The Durwood Family Settlement Agreement provides, among other matters,
that, subject to satisfaction or waiver of all conditions precedent to the
Merger, (i) Mr. Stanley H. Durwood will receive 5,015,657 shares of AMCE Class B
Stock for his interests in DI and AAE and the Durwood Children will receive an
aggregate of 8,767,223 shares of AMCE Common Stock
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for their interests, (ii) within 12 months after the proposed Merger of DI and
AMCE, the Durwood Family Stockholders will offer an aggregate minimum of
3,000,000 shares of AMCE Common Stock in a secondary offering, of which 500,000
shares (after conversion of an equal number of shares of AMCE Class B Stock into
AMCE Common Stock) will be sold by Mr. Stanley H. Durwood or any of his
charitable donees who independently agrees to participate in the Secondary
Offering and the balance by the Durwood Children or any of their charitable
donees who independently agrees to participate in the Secondary Offering, (iii)
Mr. Stanley H. Durwood will pay the Durwood Children up to $20 million in shares
of AMCE Common Stock if and to the extent the price received by them in the sale
of 2,500,000 shares of AMCE Common Stock in the Secondary Offering is less than
$18 per share (net of applicable underwriting commissions) (the "Share
Adjustment") and (iv) for three years after the Merger, the Durwood Children
will give a proxy to the Secretary and each Assistant Secretary of AMCE to vote
their shares of AMCE Common Stock for each candidate for the AMCE Board in the
same proportionate manner as the aggregate votes cast in such elections by all
other holders of AMCE Common Stock not affiliated with AMCE, its directors and
officers. The Durwood Family Settlement Agreement also contains other provisions
relating to such matters as the termination of AAE, the conversion of shares of
AMCE Class B Stock prior to the proposed Merger and indemnification from any
unexpected gift tax and other matters.
The Special Committee met again on May 21, 1996 following advice that
agreement had been reached on these issues described above among the Durwood
Family Stockholders and following the distribution of revised drafts of the
Merger Agreement and the related agreements. The Special Committee reviewed the
representations to be given by DI, the reimbursement of AMCE's expenses, the
terms of the proposed Secondary Offering and the restrictions on transfer of
AMCE stock by Durwood Family Stockholders contained in the Stock Agreement.
On July 24, September 25 and November 5, 1996, the Special Committee met to
discuss issues raised in the negotiations, including the indemnification
provisions, the parameters of the Secondary Offering and the form of tax opinion
regarding the Merger. At the last of these meetings, the Special Committee was
advised that lawyers for the parties in the Derivative Action had executed the
Derivative Action Settlement Agreement providing for the settlement of that
litigation. The Special Committee discussed the inclusion of a provision
requiring the Merger as part of the settlement.
On November 25, 1996, January 20, 1997 and February 6, 1997, the Special
Committee met to receive status reports on the negotiations and consider issues
relating to the accounting treatment of the Merger and the allocation of
indemnification obligations for the benefit of AMCE among the Durwood Family
Stockholders.
On March 13, 1997, the AMCE Board and the Special Committee met to consider
the Merger and the Secondary Offering. The Special Committee convened first and
heard the reports of Furman Selz and KPMG, financial advisors to the Special
Committee. Furman Selz discussed its analysis of the Merger, presented the
Special Committee with its fairness opinion and discussed the benefits to AMCE
and its unaffiliated stockholders of the Merger and the Secondary Offering. See
"--Reports of Advisors."
KPMG reported to the Special Committee on the results of its limited
procedures performed with respect to DI. See "--Reports of Advisors." Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"), auditors for the Company, then discussed
the accounting treatment of the Merger.
A joint meeting of the full AMCE Board and the Special Committee then
convened. Counsel to the Special Committee summarized the history of discussions
concerning the Merger and related transactions and of deliberations of the
Special Committee. Counsel to the Special Committee then summarized the
provisions of the Merger Agreement, Indemnification Agreement, Stock Agreement
and Registration Agreement. Furman Selz and KPMG then presented their reports to
the Special Committee, followed by a discussion by Coopers & Lybrand of the
accounting treatment of the Merger. Following these presentations, the meeting
of the full AMCE Board was recessed and the meeting of the Special
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Committee was reconvened. The Special Committee reviewed its conclusions
concerning the Merger and related transactions and voted unanimously to
recommend approval of the Merger and related transactions to the New Independent
Directors and the full AMCE Board. The meeting of the Special Committee was
adjourned, and the meeting of the full AMCE Board was reconvened. The Special
Committee then presented its reasons for recommending approval of the Merger and
related transactions and gave its recommendation to the full AMCE Board and the
New Independent Directors. After discussions and questions by the AMCE Board,
each of the New Independent Directors and each other member of the full AMCE
Board voted to approve the Merger and related transactions, subject to agreement
by the Durwood Children to amend their right to terminate the Durwood Family
Settlement Agreement if the Merger had not occurred by a certain date. By March
25, 1997, the Durwood Children had agreed to extend this date to September 30,
1997. On March 31, 1997, AMCE executed the Merger Agreement.
SUMMARY OF TERMS OF AGREEMENTS. The Merger Agreement, a Stock Agreement, a
Registration Agreement and an Indemnification Agreement were negotiated by the
Special Committee. See "The Merger--Material Terms of the Merger" for a summary
of the terms of these Agreements.
REPORTS OF ADVISORS
FAIRNESS OPINION OF FURMAN SELZ. Furman Selz advised the Special Committee
on March 13, 1997 that it was its opinion as investment bankers that the
consideration to be paid by AMCE in the Merger is fair, from a financial point
of view, to AMCE. Furman Selz expressed its view that because DI would at the
time of the Merger have no assets (other than shares of AMCE Common Stock and
AMCE Class B Stock) and AMCE would be indemnified against liabilities of DI, the
value of the shares of AMCE Common Stock and AMCE Class B Stock to be issued in
the Merger should be viewed as the total consideration to be paid by AMCE in the
Merger. Because this consideration will equal the aggregate amount of shares of
AMCE stock held by DI at the time of the Merger (subject to the payment of
fractional shares in cash), which shares will be acquired by AMCE by virtue of
the Merger, the Merger can be viewed as an exchange of like assets.
ADDITIONAL PRESENTATION OF FURMAN SELZ. In connection with a discussion of
the Merger, Furman Selz also noted the following:
Furman Selz noted that the Merger would increase the voting interest of
AMCE's unaffiliated stockholders. As a result of the Merger and without giving
effect to the Secondary Offering, based on shares outstanding as of March 13,
1997, the voting interest of unaffiliated stockholders would increase from 3.3%
to 6.2%. Assuming conversion of the Convertible Preferred Stock into AMCE Common
Stock and without giving effect to the Secondary Offering, the voting interest
of unaffiliated stockholders would increase from 7.8% to 14.1%; after
consummation of the Secondary Offering, such interest would increase from 11.9%
assuming no conversion of Convertible Preferred Stock to 19.7% assuming full
conversion of Convertible Preferred Stock. Furman Selz discussed the possibility
that such increase in the voting interest of public stockholders would enhance
the attractiveness of AMCE's stock, in particular to institutional holders.
Furman Selz noted that institutional ownership of AMCE Common Stock is low
relative to other companies in the theatrical exhibition industry.
Furman Selz expressed the view that the Merger would create an ownership
structure for AMCE that would be easier to understand. See "--Organization and
Ownership of AMCE and DI", Chart I.
Furman Selz further stated that by increasing the public float and
liquidity, the Secondary Offering may narrow the bid/asked spread of AMCE Common
Stock, perhaps reduce the volatility of daily stock price changes and may
increase the interest of institutional investors in AMCE Common Stock. Furman
Selz expressed the view that these effects, over time, may enhance shareholder
value.
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Furman Selz stated its conclusion that these potential benefits to AMCE and
its stockholders were significant in comparison to the transaction costs to be
borne by AMCE in the Merger.
REPORT OF KPMG. At the direction of the Special Committee, KPMG assisted
the Special Committee with its investigation and analysis of the Merger. The
primary scope of KPMG's engagement was to obtain, analyze and comment on the
financial data provided by the Company. In this connection, KPMG:
- Met with officers and management of DI;
- Read DI's historical and latest interim financial statements available and
discussed them with management;
- Reviewed DI's auditors' workpapers and management letter;
- Read an analysis of DI's revenues and expenses and inquired about the
components thereof;
- Read an analysis of DI's assets and an analysis of accounts payable,
accrued expenses and borrowings and deferred gains and inquired about any
unrecorded amounts;
- Inquired about significant commitments and contingent liabilities;
- Reviewed an analysis of accrued income taxes and inquired about the
adequacy of accruals, the existence of any significant tax exposure items
and the status of any examinations.
The procedures performed by KPMG were limited in nature. Such procedures did
not constitute an audit, examination or review in accordance with standards
established by the American Institute of Certified Public Accountants and,
therefore, KPMG did not express an opinion or any other form of assurance on the
information presented in this report.
REASONS FOR RECOMMENDATIONS
Based on its investigations and analysis and the reports of its advisors,
the Special Committee concluded that the Merger is fair to, and in the best
interests of, AMCE and its unaffiliated stockholders for the following reasons:
(1) Based on shares outstanding when the Special Committee approved the
Merger, the Merger would increase the voting interest of the unaffiliated
stockholders from 3.3% to 6.2%, assuming no conversion of Convertible
Preferred Stock, and from 7.8% to 14.1%, assuming full conversion of
Convertible Preferred Stock into AMCE Common Stock and before the Secondary
Offering. This increase will be a result of the conversion by DI of shares
of AMCE Class B Stock (which have ten votes per share) into shares of AMCE
Common Stock (which have one vote per share) in connection with the Merger.
(2) The Merger will simplify the corporate structure of AMCE and related
companies by removing the two levels of holding companies (AAE and DI).
(3) The Merger will be accounted for as a corporate reorganization and
will not affect AMCE's total capitalization because AMCE will issue shares
of AMCE stock in the exact number (except for the payment of fractional
shares in cash) of the shares of AMCE stock held by DI that AMCE will
acquire in the Merger. Also, because DI will have no other assets or
liabilities, except for certain contingent assets and liabilities against
which AMCE will be indemnified, the Merger may be viewed as an exchange of
like assets in which shares of AMCE stock will be exchanged in consideration
for a like amount of shares. The Special Committee received and relied upon
an opinion of Furman Selz as to the fairness from a financial point of view
to AMCE of the consideration to be paid by AMCE in the Merger. It also
relied upon the results of the limited procedures performed by KPMG and
discussions with Coopers & Lybrand and the advice of the Commission staff
concerning the Merger's treatment as a corporate reorganization.
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(4) The Merger will have no tax effect on unaffiliated stockholders
because it will be a tax-free reorganization in the opinion of special tax
counsel. See "--Certain Federal Income Tax Consequences."
(5) Finally, as a result of the Merger, shares of AMCE stock will be
distributed to stockholders of DI who have agreed to sell a portion of those
shares in the Secondary Offering. As noted below in greater detail, the
Secondary Offering will benefit AMCE and its unaffiliated stockholders.
In its consideration of the Merger, the Special Committee also reviewed the
Secondary Offering and concluded it was in the best interests of AMCE and its
stockholders for the following reasons:
(1) The Secondary Offering will increase the float and liquidity of the
AMCE Common Stock, making it easier for stockholders to sell their shares or
buy additional ones. Approximately 4.2 million shares of AMCE Common Stock
(not including shares issuable upon conversion of the AMCE Convertible
Preferred Stock) are owned by persons who are not Durwood Family
Stockholders. If the minimum of 3,000,000 shares of AMCE Common Stock is
sold in the Secondary Offering, the public float will increase by nearly
75%. In addition, the shares currently held by the Durwood Family
Stockholders through AAE and DI will, as a result of the Merger, be held
directly by those persons and may be sold at their individual discretion
(absent the Merger, action of AAE and/or DI would be needed), subject to
transfer restrictions in the Stock Agreement and elsewhere. Future sales by
these persons will further increase the public float. As a result of the
Secondary Offering, based on shares outstanding when the Special Committee
approved the Merger, the voting interest of persons who are not Durwood
Family Stockholders would increase from 6.2% after the Merger to 11.9% after
the Secondary Offering (assuming the Convertible Preferred Stock is not
converted) or from 14.1% after the Merger to 19.7% after the Secondary
Offering on a fully diluted basis.
(2) By increasing the public float and liquidity, the Secondary Offering
may reduce the volatility of daily stock price changes, narrow the bid/asked
spread and increase the interest of institutional investors in AMCE Common
Stock. These effects, over time, may enhance shareholder value.
The Special Committee noted that all of these benefits are possible without
substantial cost to AMCE or its stockholders. AMCE has incurred expenses in
negotiating the Merger Agreement and related agreements and will incur
additional expenses in carrying out the terms of these agreements, including
seeking the approval of its stockholders (total costs are estimated at $2
million). However, DI (if the merger is not consummated) and Mr. Stanley H.
Durwood, the 1989 Trust, the 1992 Trust and Delta (if the merger is consummated)
will pay 50% of AMCE's expenses (subject to offset for Credit Amounts), and, in
certain circumstances, 100% of AMCE's expenses. In addition, Mr. Stanley H.
Durwood, the 1989 Trust and the 1992 Trust will reimburse AMCE for its expenses
in connection with the Secondary Offering (subject to offset for Credit Amounts)
and, with certain exceptions, if the Secondary Offering is not consummated, will
pay AMCE $2 million (subject to offset for Credit Amounts) for diversion of its
employees in connection with the Secondary Offering.
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The Special Committee also based its recommendations on the fact that the
terms of the Merger Agreement and the related agreements (including the
Secondary Offering) were determined through arms' length negotiations between
representatives of the Durwood Family Stockholders and DI, on the one hand, and
the Special Committee, on the other hand.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Special Committee did not find it practicable to
assign relative weights to the factors considered in reaching its decision, and,
therefore, the Special Committee did not qualify or otherwise attach relative
weights to the specific factors it considered.
The Special Committee considered as an important element of its assessment,
among the other factors described above, the analyses of its financial advisor
as to the fairness of the Merger. The Special Committee relied upon the fairness
opinion of Furman Selz for its analysis and the Special Committee expressly
adopted the conclusions and analysis of Furman Selz as its own.
The Special Committee also considered as another important element of its
assessment of the Merger the results of the limited procedures performed with
respect to DI and its subsidiaries, other than the Company, conducted by KPMG.
As more fully described in "Report of KPMG" above, because these procedures
related to financial and accounting aspects of DI, the company to be merged into
AMCE (including analyses of its assets and liabilities), KPMG's report was
important to the Special Committee.
The Special Committee (whose members are parties to the Derivative Action)
also took note of the following. As discussed above, a proposal relating to the
Merger and Secondary Offering became part of preliminary settlement discussions
in the Derivative Action. These settlement negotiations were not finalized until
October 10, 1996, by which time the Special Committee had substantially
concluded its analysis of the benefits of the Merger and the Secondary Offering.
On that date, the Derivative Action Settlement Agreement was signed and provided
for the Merger and Secondary Offering as part of the settlement. In this
connection, Mr. Stanley H. Durwood and Mr. Edward D. Durwood had entered into
the Durwood Family Settlement Agreement in which all parties agreed to work to
effect the Merger. The provisions relating to the Merger and the Secondary
Offering are only a part of the Derivative Action Settlement Agreement and the
undertakings of the parties.
The Special Committee noted that in addition to approval of the Merger
Agreement by the Special Committee, the Merger Agreement is subject to approval
by the holders of a majority of the shares of AMCE Common Stock (other than
those owned by DI, the Durwood Family Stockholders, their spouses, their
children sharing the same household and directors and officers of AMCE) voting
on the Merger.
Based on the preceding, the Special Committee recommended that the New
Independent Directors approve and that the full AMCE Board approve and adopt the
Merger Agreement and the related agreements (including the Secondary Offering)
described above and recommend that AMCE stockholders approve and adopt the
Merger Agreement. In accordance with the Derivative Action Settlement Agreement,
two New Independent Directors have been elected to the AMCE Board. The
Derivative Action Settlement Agreement requires that the New Independent
Directors shall have the ability to approve or disapprove any proposed
transaction between AMCE and members of the Durwood Family. Accordingly, the New
Independent Directors voted separately and as part of the full AMCE Board on the
Merger and the Secondary Offering.
The full AMCE Board and the two New Independent Directors voted unanimously
to approve and adopt the Merger Agreement and the related agreements (including
the Secondary Offering) and to recommend that AMCE stockholders approve and
adopt the Merger Agreement.
FAIRNESS OPINION OF FURMAN SELZ. Furman Selz has delivered its written
opinion to the Special Committee that, as of March 13, 1997, the consideration
to be paid by AMCE in the Merger is fair, from a financial point of view, to
AMCE. In rendering the opinion, Furman Selz assumed that at the time of the
Merger, DI will have no liabilities except for a contingent liability which,
they were informed, is remote.
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They also took note of the fact that certain shareholders of DI will indemnify
AMCE against the existence of such liabilities for a period of two years after
the March 31 occurring immediately after the Effective Date. They have also
relied upon the accuracy and completeness of the financial and other information
supplied to or otherwise used by them in arriving at their opinion and have not
attempted independently to verify such information. They have further relied
upon the assurances of the management of DI and AMCE that they were not aware of
any facts that would make such information inaccurate or misleading. In view of
the opinion that Chadbourne & Parke LLP, special tax counsel, will render,
Furman Selz assumed that the Merger will qualify as a reorganization in which no
taxable income, gain or loss will be recognized by AMCE or DI. They also assumed
that the Merger would be accounted for as a corporate reorganization. The
opinion is based on economic, market and financial conditions existing as of its
date. No limitations were imposed by the AMCE Board or the Special Committee
upon Furman Selz with regard to the investigations made or procedures followed
by Furman Selz in rendering its opinion.
The full text of Furman Selz's opinion, which sets forth assumptions made,
matters considered and limits of the review undertaken in arriving at the
opinions set forth therein, is attached as Annex 2 and is incorporated herein by
reference in its entirety. AMCE's stockholders are urged to read this opinion in
its entirety for assumptions made, matters considered and limits of the review
by Furman Selz. The summary of the opinion set forth herein is qualified in its
entirety by reference to the full text of the opinion. Furman Selz's opinion is
directed only to the fairness, from a financial point of view, of the
consideration to be paid by AMCE in the Merger and does not constitute a
recommendation to any stockholder of AMCE to vote to approve the Merger. In
rendering its opinion, Furman Selz, among other things, reviewed the forms of
Merger Agreement, Indemnification Agreement, Stock Agreement and Registration
Agreement, together with certain historical financial information of DI and
AMCE. Furman Selz also met with members of management of DI and AMCE,
respectively, and considered the trading history of AMCE Common Stock from
January 2, 1992 through March 7, 1997 and a comparison of that trading history
with those of other companies in the theatrical exhibition industry. Furman Selz
also undertook such other studies, analysis and investigations as it deemed
appropriate. In connection with its presentation concerning the benefits of the
Secondary Offering, Furman Selz compared historical and projected financial
results and financial condition of AMCE with those of other companies engaged in
the theatrical exhibition industry. Furman Selz is a nationally recognized
investment banking firm regularly engaged in the evaluation of businesses and
their securities in connection with mergers and acquisitions. Furman Selz was
chosen by the Special Committee because of the Special Committee's assessment of
Furman Selz's expertise in financial matters and business combination
transactions in the entertainment industry and a favorable prior experience that
one of the members of the Special Committee had with Furman Selz.
Pursuant to a letter agreement dated May 22, 1995 between Furman Selz and
AMCE (the "Engagement Letter"), Furman Selz was engaged to provide financial
advisory and investment banking services to the Special Committee in connection
with its consideration of the Merger, including the rendering of a written
opinion relating to the fairness to AMCE, from a financial point of view, of the
Merger consideration. The Special Committee on behalf of AMCE has agreed to pay
Furman Selz an aggregate fee pursuant to the Engagement Letter of $350,000. Of
this fee, $175,000 has been paid and the remaining $175,000 will be payable upon
the consummation of the Merger. AMCE has also agreed to reimburse Furman Selz
for its reasonable out-of-pocket expenses, and to hold harmless Furman Selz from
and against certain losses, claims, damages, liabilities and expenses related to
or arising out of Furman Selz's engagement under or its role in connection with
the Engagement Letter. Furman Selz may in the future, from time to time, perform
certain other financial advisory and securities underwriting services for AMCE
for which it may receive a fee. In the ordinary course of its business, Furman
Selz may trade in the equity securities of AMCE for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
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During the course of its engagement, Furman Selz provided the Special
Committee with presentations and other information and assisted in negotiations
and met on numerous occasions in person and by telephone with the Special
Committee. On March 13, 1997, Furman Selz delivered to the Special Committee its
written opinion that, as of such date, the consideration to be paid by AMCE in
the Merger was fair, from a financial point of view, to AMCE.
In its presentation to the Special Committee on March 13, 1997, Furman Selz
expressed its view that because DI would at the time of the Merger have no
assets (other than shares of AMCE Common Stock and AMCE Class B Stock) and AMCE
would be indemnified against liabilities of DI, the value of the shares of AMCE
Common Stock and AMCE Class B Stock to be issued in the Merger should be viewed
as the total consideration to be paid by AMCE in the Merger. Because this
consideration will equal the aggregate amount of shares of AMCE stock held by DI
at the time of the Merger (subject to the payment of fractional shares in cash),
which shares will be acquired by AMCE by virtue of the Merger, the Merger can be
viewed as an exchange of like assets.
Furman Selz believes that its analysis must be considered as a whole and
that selecting portions of its analysis and the factors considered by Furman
Selz, without considering all the factors and analysis, could create an
incomplete view of the processes underlying Furman Selz's opinion and its
presentation to the Special Committee. The preparation of a fairness opinion is
a complex process not susceptible to partial analysis or summary description. In
rendering its opinion, Furman Selz made numerous assumptions, many of which are
beyond the control of AMCE or DI.
MATERIAL TERMS OF THE MERGER
The following is a summary of the material terms of the Merger Agreement and
the Stock Agreement, Registration Agreement and Indemnity Agreement referred to
therein. Copies of such agreements are exhibits to the Merger Agreement and
included in Annex 1 to this Proxy--Information Statement/ Prospectus, and such
summary is qualified in its entirety by reference to the full texts of such
agreements.
THE MERGER AGREEMENT
EFFECTIVE TIME. The closing date of the Merger shall occur as promptly as
practicable after satisfaction or waiver of all the conditions in the Merger
Agreement. The Merger shall be effective (the "Effective Time") immediately upon
the filing of the Merger Agreement or a Certificate of Merger with the Secretary
of State of Delaware in accordance with applicable law.
MERGER CONSIDERATION. In the Merger, shares of DI stock will be converted
as follows (subject to the payment of fractional shares in cash):
Each share of DI Class A Stock which immediately prior to the Effective Time
is owned of record by persons other than Mr. Stanley H. Durwood, the 1989 Trust
and the 1992 Trust shall be converted into 32.142857 shares of AMCE Common
Stock.
Each share of DI Class A Stock issued and outstanding immediately prior to
the Effective Time owned by Mr. Stanley H. Durwood, the 1989 Trust or the 1992
Trust shall be converted into 32.142857 shares of AMCE Class B Stock.
Each share of DI Class B Stock which immediately prior to the Effective Time
is owned of record by Mr. Stanley H. Durwood, the 1989 Trust or the 1992 Trust
will be converted into 243.767528 shares of AMCE Class B Stock.
Each share of DI Class B Stock which immediately prior to the Effective Time
is owned of record by any person other than Mr. Stanley H. Durwood, the 1989
Trust or the 1992 Trust will be converted into 243.767341 shares of AMCE Common
Stock.
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SHARES OF AMCE COMMON STOCK HELD BY PERSONS OTHER THAN DI AND SHARES OF
CONVERTIBLE PREFERRED STOCK WILL NOT BE EXCHANGED IN THE MERGER. Each share of
AMCE Common Stock and Class B Stock held by DI at the Effective Time will be
canceled.
CONVERSION AND EXCHANGE OF SHARES. After the Effective Time of the Merger,
each holder of an outstanding certificate or certificates formerly representing
shares of DI Class A Stock or DI Class B Stock will be entitled to receive, upon
surrender of his or her DI stock certificates, a certificate or certificates
representing the number of full shares of AMCE Common Stock or AMCE Class B
Stock into which such shares of DI stock shall have been converted pursuant to
the Merger, together with cash in lieu of any fractional shares. Promptly after
the Effective Time of the Merger, AMCE or its representative will mail or
otherwise deliver to each holder of certificates formerly representing DI Class
A Stock or DI Class B Stock instructions for surrendering his or her DI stock
certificates for certificates representing shares of AMCE Common Stock or AMCE
Class B Stock, as the case may be, and cash in lieu of any fractional shares.
From and after the Effective Time of the Merger, certificates formerly
representing shares of DI Class A Stock or DI Class B Stock will be deemed for
all corporate purposes to evidence ownership of the number of full shares of
AMCE Common Stock or AMCE Class B Stock into which such shares were converted
pursuant to the Merger, provided, that until such DI stock certificates have
been so surrendered, no dividends payable to the holders of record of DI stock
as of any date subsequent to the Merger shall be paid to the holders of such
outstanding DI stock certificates. Any dividends payable on AMCE Common Stock or
AMCE Class B Stock to holders of record as of any date after the Effective Time
of the Merger and prior to the exchange of certificates by any DI shareholder
will be paid to such shareholder, without interest, at the time such shareholder
surrenders his or her DI stock certificates for exchange.
SHARES OF AMCE STOCK HELD BY PERSONS AND ENTITIES OTHER THAN DI WILL NOT BE
EXCHANGED IN THE MERGER. HOLDERS OF AMCE STOCK SHOULD NOT SURRENDER THEIR SHARES
IN CONNECTION WITH THE MERGER.
DI PRE-MERGER ACTION PLAN. Pursuant to the DI Pre-Merger Action Plan set
forth as Exhibit A to the Merger Agreement (the "DI Pre-Merger Action Plan"),
prior to the Effective Time, all of DI's assets (other than its equity interest
in AMCE), consisting primarily of life insurance policies, cash and notes of the
Durwood Children and a former officer of the Company, will be transferred to
Delta and Delta will agree to assume DI's liabilities, and DI's other
subsidiaries, other than AMCE and its subsidiaries, have been merged into Delta.
Delta's stock will be distributed to DI's shareholders so that, at the Effective
Time, DI's sole assets will consist of stock of AMCE and its beneficial interest
in certain tax credits and operating loss carryforwards. In addition, AAE will
be liquidated.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties relating to, among other things: (i)
each of AMCE's and DI's organization and similar corporate matters, (ii) each of
AMCE's and DI's capital structure, (iii) authorization, execution, delivery and
enforceability of the Merger Agreement and related matters, (iv) the
subsidiaries of DI (other than AMCE) and investments by DI in other persons and
entities, (v) the financial statements of DI as of and for the fiscal year ended
March 26, 1996 and as of and for the thirty-nine week period ended December 26,
1996, (vi) absence of material changes with respect to DI since December 26,
1996, except as contemplated by the DI Pre-Merger Action Plan (vii) absence of
material liabilities of DI as of the Effective Time, (viii) the filing by DI of
its tax returns and payment of its taxes, (ix) the absence of ownership by DI
and its subsidiaries (other than AMCE) of real property or tangible assets, and
the absence of ownership of any assets of DI other than AMCE Common Stock and
AMCE Class B Stock at the Effective Time, (x) leases of DI, (xi) the accuracy of
the books and records of DI, (xii) the ownership by DI of certain life insurance
policies, (xiii) compliance by DI with applicable law, (xiv) the absence of
litigation and other proceedings involving DI or any of its subsidiaries (other
than AMCE), (xv) the absence of misstatements by DI in written materials
furnished in connection with the transaction, (xvi) the lack of liabilities of
DI and its subsidiaries (other than AMCE) for a brokerage or similar fee in
connection
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with the transaction, (xvii) DI's employees and benefit plans, (xviii) contracts
of DI and the absence of such contracts binding upon DI at the Effective Time,
(xix) the adequacy of reserves on DI's December 26, 1996 balance sheet and (xx)
that any contract of DI benefiting any insider or affiliate of DI is set forth
on a schedule to the Merger Agreement.
CERTAIN COVENANTS. DI has agreed that until the Effective Time, except as
otherwise contemplated in the Pre-Merger Action Plan, it will conduct its
business only in the ordinary course as previously conducted, will not amend its
certificate of incorporation, declare or pay any dividend or other distribution
in respect of its capital stock, incur any indebtedness, enter into any material
agreement or take other actions prohibited by the Merger Agreement. DI has also
agreed to afford representatives of AMCE access to its books and records in
connection with the transactions contemplated by the Merger Agreement.
AMCE has agreed to prepare and file the Registration Statement with respect
to the issuance of shares of AMCE in the Merger. AMCE has also agreed to use its
reasonable efforts to have listed for trading on the AMEX and, if AMCE Common
Stock is still listed on the Pacific Stock Exchange, on the Pacific Stock
Exchange, the AMCE Common Stock to be issued pursuant to the Merger.
DI has agreed that at the time the Registration Statement or any
post-effective amendment thereto becomes effective, and at all times subsequent
to any such effectiveness up to and including the Effective Time, any
information regarding DI or any insider or affiliate of DI set forth in the
Registration Statement, any amendments or supplements thereto, the proxy
statement and in any other proxy soliciting material to be used by AMCE and DI
in connection with the transactions contemplated by the Merger Agreement, will
comply as to form in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission thereunder, and will not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
made therein not misleading. DI further agrees to cause all actions contemplated
by the Pre-Merger Action Plan to occur at the times contemplated by the
Pre-Merger Action Plan.
CONDITIONS TO CLOSING. The respective obligations of AMCE and DI to effect
the Merger are subject to the following conditions, among others: (i) the Merger
Agreement shall have been approved by the requisite votes of the holders of AMCE
Common Stock, AMCE Class B Stock, DI Class A Stock and DI Class B Stock required
under the DGCL and the GBCLM, as applicable, and, in addition, shall have been
approved by the holders of a majority of the outstanding shares of AMCE Common
Stock (excluding DI, the Durwood Family Stockholders, their spouses, children
living in the same household and officers and directors of AMCE) present or
represented by proxy and voting at the meeting of stockholders called to
consider the Merger, (ii) all required approvals of state securities
administrators shall have been obtained and at the Effective Time no stop order
or similar restraining order shall have been threatened or entered by the
Commission or any state securities administrators, (iii) the shares of AMCE
Common Stock to be issued pursuant to the Merger shall have been approved for
listing by the AMEX and, if AMCE Common Stock is still listed on the Pacific
Stock Exchange, on such exchange, (iv) all relevant governmental filings shall
have been made or obtained, (v) all requisite consents, approvals and agreements
of third parties in connection with the Merger and the actions contemplated by
the Pre-Merger Action Plan shall have been received and (vi) Harvard College
shall have given its written consent to the Merger.
The obligations of AMCE to effect the Merger are subject to the following
conditions, among others: (i) DI shall have taken all requisite corporate action
in connection with the Merger and Pre-Merger Action Plan, (ii) there shall be no
litigation, proceedings or actions concerning the Merger that in the judgment of
the AMCE Board renders consummation of the Merger inadvisable, (iii) no
dissenters' rights shall have been exercised by the holders of any shares of DI
Stock, (iv) the Indemnification Agreement, Stock Agreement and Registration
Agreement shall have been executed by the other parties thereto and remain in
full force and effect, (v) AMCE shall have received a satisfactory fairness
opinion from Furman
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Selz, (vi) AMCE shall have received from Coopers & Lybrand satisfactory "comfort
letters", (vii) the representations and warranties of DI in the Merger Agreement
shall continue to be true and correct in all material respects, (viii) DI shall
have performed in all material respects its obligations in the Merger Agreement
to be performed prior to the Effective Time, (ix) AMCE shall have received an
opinion of Chadbourne & Parke, LLP to the effect that the Merger will constitute
a reorganization within the meaning of Section368(a)(1)(A) of the Code and no
income, gain or loss will be recognized by AMCE or DI as a result of the Merger,
(x) AMCE shall have received a satisfactory opinion from special counsel to DI
and (xi) DI shall have converted 6,141,343 shares of AMCE Class B Stock into a
like number of shares of AMCE Common Stock.
The obligations of DI to effect the Merger are subject to the following
conditions, among others: (i) AMCE shall have taken all requisite corporate
action in connection with the transactions contemplated by the Merger Agreement,
(ii) the Indemnification Agreement, Stock Agreement and Registration Agreement
shall have been executed by AMCE and remain in full force and effect, (iii)
there shall be no litigation, proceedings or actions concerning the Merger that
in the judgment of the Board of Directors of DI renders consummation of the
Merger inadvisable, (iv) the representations and warranties of AMCE in the
Merger Agreement shall continue to be true and correct in all material respects,
(v) AMCE shall have performed in all material respects its obligations under the
Merger Agreement to be performed prior to the Effective Time and (vi) DI and its
shareholders shall have received the opinion of Chadbourne & Parke, LLP to the
effect that the Merger will constitute a reorganization within the meaning of
Section368(a)(1)(A) of the Code and except for cash received in lieu of
fractional shares or in payment of Credit Amounts (see--"Indemnification
Agreement--Other Agreements" ), no income, gain or loss will be recognized by DI
or its shareholders as a result of the Merger.
EXPENSES. If the Merger is not consummated for any reason (other than as a
result of the Board of Directors of AMCE terminating the Merger Agreement for a
Specified Reason (as defined below) or Without Cause (as defined below)), DI
shall be responsible for all of the expenses of DI and AMCE in connection with
the Merger. If the Merger Agreement is terminated by the AMCE Board for a
Specified Reason or Without Cause, DI shall be responsible for 50% of AMCE's
expenses (but shall continue to be responsible for 100% of DI's expenses).
A "Specified Reason" shall mean any of the following bases for a
determination by the AMCE Board to terminate the Merger Agreement: (i) that it
is in the best interest of AMCE to pursue an unrelated transaction and the
transactions contemplated by the Merger Agreement would adversely impact such
unrelated transaction, (ii) that certain conditions in the Merger Agreement have
failed due to circumstances beyond the control of the parties or the Durwood
Family Stockholders or (iii) AMCE's condition relating to litigation is not
satisfied (unless DI or any Durwood Family Stockholder is involved in a role
adverse to AMCE). "Without Cause" shall mean a determination by the AMCE Board
to terminate the Merger Agreement without having a reasonable basis for such
action.
AMENDMENT AND TERMINATION. DI and AMCE, by mutual consent of the Board of
Directors of DI and the AMCE Board acting with the recommendation of the Special
Committee, may amend the Merger Agreement at any time, provided that no such
amendment shall (i) if agreed to after approval by the stockholders of AMCE,
change the amount or nature of the consideration received by shareholders of DI
or, in the judgment of the AMCE Board acting with the recommendation of the
Special Committee, otherwise have a material adverse effect on the rights of
AMCE stockholders, or (ii) be effective unless approved by a majority of the
Durwood Family Stockholders.
The Merger may be deferred or abandoned at any time prior to the Effective
Time by the Board of Directors of DI or the AMCE Board acting with the
recommendation of the Special Committee.
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THE STOCK AGREEMENT
One of the conditions to the Merger is that the Durwood Family Stockholders
enter into the Stock Agreement with AMCE.
RESTRICTIONS ON CERTAIN ACTIONS. Pursuant to the Stock Agreement, each of
the Durwood Children agrees that for a period of three years commencing on the
date of the Merger (the "Restricted Period"), he or she will not become a member
of a group (other than a group composed solely of Durwood Family Stockholders)
or make any public or private proposal with respect to an extraordinary
transaction involving AMCE or any of its subsidiaries, participate in any proxy
or election contest, or subject shares of AMCE Common Stock owned by him or her
to a voting agreement or other arrangement with respect to the voting of such
shares.
Each of the Durwood Children also grants a proxy to the Secretary and each
Assistant Secretary of AMCE to vote shares of AMCE Common Stock owned by him or
her for each candidate for the AMCE Board in the same proportion as the
aggregate votes cast in such elections by all other holders of AMCE Common Stock
not affiliated with AMCE, its directors and officers. This proxy will remain in
effect during the Restricted Period.
Each Durwood Family Stockholder agrees not to transfer any of its AMCE
stock, except in compliance with the Securities Act. Each Durwood Family
Stockholder also agrees that during the Restricted Period he or she will not
transfer AMCE stock by gift to any person or entity unless such person or entity
agrees to be bound by the Stock Agreement, provided that each Durwood Family
Stockholder may transfer up to 5% of the shares of AMCE stock he or she receives
in the Merger to certain charitable assignees (as defined in the Stock
Agreement) free of the provisions of the Stock Agreement.
Each of the Durwood Children also agrees that in the event any of them
desires during the Restricted Period to sell any of his or her shares of AMCE
stock in a transaction exempt from the Securities Act (other than in a brokers'
transaction), he or she shall first afford AMCE the opportunity to purchase such
shares on the same terms and conditions as the proposed sale.
SECONDARY OFFERING. Each Durwood Family Stockholder agrees to use his or
her best efforts to cause the Secondary Offering to be consummated during the
period beginning on the date that is six months and one day from the Effective
Date and ending on the date that is six months from such beginning date,
provided that such six-month period may be extended under certain circumstances.
In the event that the Merger is consummated but the Secondary Offering is
not consummated, other than as a result of the breach by AMCE of the
Registration Agreement, Mr. Stanley H. Durwood, the 1992 Trust, the 1989 Trust
and Delta agree jointly and severally to pay AMCE a fee of $2 million (subject
to offset for Credit Amounts ( See "--The Indemnification Agreement -- Other
Agreements")) and to reimburse AMCE for all of its expenses in connection with
the Merger not theretofore reimbursed.
TAX MATTERS. Except as provided below, each Durwood Family Stockholder
represents that it has no intention of disposing of a number of shares of AMCE
stock received in the Merger in excess of 50% of the number of such shares
received by such Durwood Family Stockholder in the Merger. In addition, to
enable Harvard College to sell all of the shares of AMCE Common Stock it
receives in the Merger if it so elects, and to take account of the payment of
Credit Amounts, if any, Mr. Stanley H. Durwood, the 1989 Trust and the 1992
Trust, collectively, represent that they have no intention of disposing of an
additional number of shares of AMCE Class B Stock equal to 65% of the number of
shares of AMCE Common Stock received by Harvard College in the Merger, plus a
number of shares of AMCE Class B Stock equal to the Specified Percentage (as
defined below) of the number of shares of AMCE Class B Stock and AMCE Common
Stock issued in the Merger. "Specified Percentage" means a percentage equal to
the product of (A) a fraction having a numerator of $1,125,000 and a denominator
equal to the sum of the value of all shares of AMCE Common Stock and AMCE Class
B Stock issued in the Merger, plus $1,125,000, multiplied by (B) 1.25.
42
<PAGE>
Each Durwood Family Stockholder also covenants not to dispose of a like
number of shares of AMCE stock received in the Merger by such Durwood Family
Stockholder during the two-year period commencing with the Effective Time of the
Merger.
THE REGISTRATION AGREEMENT
A condition to the Merger Agreement is that the Durwood Family Stockholders
enter into the Registration Agreement.
REGISTRATION. In the Registration Agreement, the Durwood Family
Stockholders agree to sell at least 3,000,000 shares of AMCE Common Stock in a
registered underwritten Secondary Offering during a six-month period beginning
the day that is six months and one day from the date of the Merger (provided
that such period can be extended under certain circumstances). They also agree
that the underwriters for such registration will use their reasonable efforts in
light of market conditions to sell at least 70% of such shares to institutional
(as opposed to retail) investors. The Durwood Family Stockholders have the right
to increase the number of shares included in the Secondary Offering to up to
5,000,000 shares.
The managing underwriters for the Secondary Offering shall be selected
jointly by AMCE and the Durwood Family Stockholders.
AMCE shall be entitled to postpone the filing of the registration statement
for the Secondary Offering for up to 180 days if, as a result of the
registration, AMCE would be required to prepare any financial statements other
than those it customarily prepares or AMCE determines in its reasonable business
judgment that such registration would interfere with any material financing,
acquisition, corporate reorganization or other material corporate transaction or
development.
REGISTRATION PROCEDURES. AMCE agrees to prepare and file a registration
statement covering the Secondary Offering, and use its reasonable efforts to
cause such registration statement to become effective. In connection with the
Secondary Offering, AMCE agrees to enter into one or more underwriting or
similar agreements, as appropriate, with customary provisions.
AMCE agrees to supplement or amend the prospectus included in the
registration statement as may be necessary to effect and maintain the
effectiveness of the registration statement for the period of the Secondary
Offering.
REGISTRATION EXPENSES. Mr. Stanley H. Durwood, the 1989 Trust, the 1992
Trust and Delta shall pay all expenses in connection with the Secondary Offering
(subject to offset for Credit Amounts (see "--The Indemnification
Agreement--Other Agreements")), except that each seller of securities in the
Secondary Offering shall pay its pro rata portion of all underwriting discounts
and commissions and the fees and expenses of its own counsel, and AMCE shall pay
all of its internal expenses.
INDEMNIFICATION. AMCE agrees to indemnify each seller of securities in the
Secondary Offering (other than Mr. Stanley H. Durwood, the 1992 Trust and the
1989 Trust) from all damages that may arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the
registration statement, or any preliminary, final or summary prospectus
contained therein or furnished by AMCE to any such seller, or any amendment or
supplement thereto, or that may arise out of or are based upon any omission or
alleged omission to state therein a material fact necessary to make the
statements therein not misleading, provided that AMCE shall not be obligated to
indemnify any such person (i) to the extent the damages are caused by an untrue
statement or alleged untrue statement or omission or alleged omission based upon
written information furnished to AMCE by any seller of securities, (ii) with
respect to any preliminary prospectus to the extent the damage results from the
fact that such person sold securities to a person to whom a prospectus was not
given at or prior to the confirmation of such sale if AMCE has previously
furnished copies of the prospectus to such seller or
43
<PAGE>
underwriter and the damage results from an untrue statement or omission
contained in the preliminary prospectus which was corrected in the prospectus
and (iii) with respect to sales occurring after AMCE has given notice to the
seller that the prospectus needs to be amended or supplemented and prior to the
delivery by AMCE of an amended or supplemented prospectus.
Each Durwood Family Stockholder agrees to indemnify AMCE and all other
sellers of securities against damages to the same extent as the indemnity by
AMCE, but only with reference to information relating to such Durwood Family
Stockholder furnished to AMCE by such Durwood Family Stockholder for use in the
registration statement, or any preliminary, final or summary prospectus.
Each party agrees that in the event the indemnities described above are
unavailable or insufficient it will contribute to the amount paid or payable to
the indemnified party in an equitable manner.
The indemnification and contribution obligations described above will
terminate (except as to claims already made) on the March 31 that is two years
after the March 31 occurring immediately after the date on which the Effective
Time occurs.
THE INDEMNIFICATION AGREEMENT
A condition to the Merger Agreement is that the Durwood Family Stockholders
enter into the Indemnification Agreement.
INDEMNITIES REGARDING REGISTRATION STATEMENT AND PROXY STATEMENT. Each of
the Durwood Family Stockholders has agreed to indemnify AMCE and its affiliates,
officers, directors, employees, agents, successors and assigns for damages
incurred as a result of any untrue statement or alleged untrue statement of a
material fact contained in the Proxy--Information Statement/Prospectus and
related Registration Statement, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, if the statement or omission was made in reliance upon and in
conformity with the information supplied by such Durwood Family Stockholders.
Such indemnification obligations are several, except that the obligations of Mr.
Stanley H. Durwood, the 1992 Trust and the 1989 Trust are joint and several.
Mr. Stanley H. Durwood, the 1992 Trust and the 1989 Trust (the "SHD
Indemnitors") have agreed to indemnify AMCE and its affiliates, officers,
directors, employees, agents, successors and assigns for damages incurred as a
result of any untrue statement or alleged untrue statement of a material fact
contained in the Proxy--Information Statement/Prospectus and related
Registration Statement, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, if the statement or omission was made in reliance upon and in
conformity with information provided by the SHD Indemnitors regarding DI,
subsidiaries of DI (other than AMCE) and AAE.
AMCE has agreed to indemnify each Durwood Family Stockholder, other than the
SHD Indemnitors, for any damages incurred by them as a result of any untrue
statement or alleged untrue statement of a material fact contained in the
Proxy--Information Statement/Prospectus and related Registration Statement, or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, in each case except to
the extent that the statement or omission was made in reliance upon and in
conformity with information supplied by the Durwood Family Stockholders.
OTHER INDEMNIFICATION. If the Effective Time occurs, AMCE shall indemnify
the Durwood Family Stockholders (other than Mr. Stanley H. Durwood, the 1989
Trust and the 1992 Trust), and certain of their assigns, against damages
resulting from a breach of any representation, warranty, covenant or agreement
of AMCE contained in the Merger Agreement.
44
<PAGE>
If the Effective Time occurs, the SHD Indemnitors shall indemnify AMCE for
any damages resulting from a breach of any representation, warranty, covenant or
agreement of DI contained in the Merger Agreement or resulting from any
liability or obligation of DI or its subsidiaries (other than AMCE).
If the Effective Time occurs, the SHD Indemnitors and Delta shall indemnify
AMCE for all of DI's expenses in connection with the Merger which have not been
paid prior to the Effective Time and for 50% of AMCE's expenses in connection
with the Merger (subject to offset for Credit Amounts (see "--The
Indemnification Agreement--Other Agreements")).
If the Effective Time occurs, the SHD Indemnitors shall indemnify AMCE for
all taxes attributable to DI or any of its subsidiaries (other than AMCE) for
periods ending on or prior to the Effective Time.
If the Effective Time does not occur, the SHD Indemnitors and Delta shall
indemnify AMCE for all damages resulting from the breach by DI of any
representation, warranty, covenant or agreement in the Merger Agreement.
If the Effective Time occurs, each Durwood Family Stockholder shall
indemnify AMCE for all damages resulting from a breach by such Durwood Family
Stockholder of any provision of Article VI of the Stock Agreement, which Article
provides in general that the Durwood Family Stockholders may not dispose of more
than 50% of the shares of AMCE stock received in the Merger during the two-year
period following the date on which the Effective Time occurs. See "--The Stock
Agreement--Tax Matters."
The indemnification obligations of the parties will terminate (except as to
claims already made) on the March 31 that is two years after the March 31
occurring immediately after the date on which the Effective Time occurs.
OTHER AGREEMENTS. The Durwood Family Stockholders have agreed that the
Durwood Family Settlement Agreement will not be amended without the prior
consent of AMCE, such consent not to be unreasonably withheld.
Each Durwood Family Stockholder has agreed to deposit certain of the shares
of AMCE stock received by him or her in the Merger in escrow for a period of two
years following the date of the Merger.
AMCE has agreed that to the extent it realizes net tax benefits from the
utilization of DI's alternative minimum tax credits and Missouri net operating
loss carryforwards, it will credit such amounts against certain obligations of
the SHD Indemnitors to pay AMCE's merger expenses if the Merger occurs, as
required by the Indemnification Agreement, to pay AMCE's expenses in the
Secondary Offering, as required by the Registration Agreement, and to pay a $2
million penalty amount and 100% of AMCE's Merger Expenses if the Secondary
Offering does not occur, as required by the Stock Agreement, and after March 31,
2000 will pay the SHD Indemnitors other Credit Amounts so realized but not so
credited. Any Credit Amount that arises after March 31, 2000 also will be paid
to Mr. Stanley H. Durwood. DI's alternate minimum tax credits were approximately
$559,000 and its Missouri operating loss carryforwards were approximately
$13,761,000 as of March 28, 1996. Such tax benefits, if fully utilized, would
create Credit Amounts aggregating approximately $1,100,000, which would be
reduced by any subsequent utilization of such benefits on separate tax returns
of DI for 1996 and the portion of 1997 prior to the Effective Time.
The SHD Indemnitors agree that they will not transfer shares of AMCE Stock
(other than in the Secondary Offering, to a charitable assignee (as defined in
the Indemnification Agreement) or otherwise in an arms'-length sale for fair
consideration) unless the transferee agrees to be bound by the provisions of the
Indemnification Agreement as an SHD Indemnitor and to guarantee the performance
by the SHD Indemnitors of their obligations under the Indemnification Agreement
and certain of their obligations under the Registration Agreement and Stock
Agreement, provided that an SHD Indemnitor may not
45
<PAGE>
transfer more than 5% of the shares of AMCE stock received by it in the Merger
to a charitable assignee unless such charitable assignee receiving shares in
excess of such threshold agrees to be so bound.
GENERAL EFFECTS OF THE MERGER
Pursuant to the Merger Agreement, DI will be merged into AMCE, with AMCE
remaining as the surviving corporation. Prior to the Merger, AAE will be
liquidated. SHARES OF AMCE COMMON STOCK HELD BY STOCKHOLDERS OTHER THAN DI AND
CONVERTIBLE PREFERRED STOCK WILL NOT BE EXCHANGED IN THE MERGER AND WILL REMAIN
OUTSTANDING. After consummation of the Merger, the separate existence of DI will
cease, the Certificate of Incorporation and Bylaws of AMCE will remain unchanged
and the directors and officers of AMCE will continue to serve as such until
their successors are duly elected or appointed or until their earlier
resignation or removal.
The table and notes set forth below illustrates, based on stockholdings as
of May 19, 1997, the beneficial ownership (before and after giving effect to the
Merger) of the Durwood Family Stockholders and other persons known to AMCE to
own beneficially in excess of 5% of its Common Stock, directors and Named
Executive Officers (as defined below in "Management of the Company--Compensation
of Management") and all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
POST-MERGER(4)
---------------------------
PRE-MERGER
-----------------------------------------------------------------
AMCE CLASS B AMCE COMMON STOCK
AMCE COMMON STOCK
NAMES OF BENEFICIAL STOCK ------------------------------- ---------------------------
OWNERS AND ADDRESSES OF -------------------------------- % OF % OF
CERTAIN 5% OWNERS NUMBER NUMBER CLASS NUMBER CLASS
------------------- ------------------ ----------- -------------- -----------
% OF
CLASS
-----------
<S> <C> <C> <C> <C> <C> <C>
Durwood, Inc. 2,641,951(1)(2)(4) 38.8 11,157,000(1)(4) 100 -- --
Stanley H. Durwood 2,697,101(1)(2)(3)(4) 39.3 11,157,000(1)(2)(4) 100 55,150(3)(4) *
Carol D. Journagan 2,641,951(2) 38.8 11,157,000(2)(4) 100 1,461,203(5) 11.3
Edward D. Durwood 2,641,951(2) 38.8 11,157,000(2)(4) 100 1,461,203(5) 11.3
Thomas A. Durwood 2,641,951(2) 38.8 11,157,000(2)(4) 100 1,461,203(5) 11.3
Elissa D. Grodin 2,641,951(2) 38.8 11,157,000(2)(4) 100 1,461,203(5) 11.3
Brian H. Durwood 2,641,951(2) 38.8 11,157,000(2)(4) 100 1,461,203(5) 11.3
Peter J. Durwood 2,641,951(2) 38.8 11,157,000(2)(4) 100 1,461,203(5) 11.3
Vanguard Explorer Fund,
Inc. c/o The Vanguard
Group of Investment
Companies P.O. Box 2600
Valley Forge, PA 19482 482,720(6) 6.6 0 -- 482,720(6) 3.7
Wellington Management
Company, LLP 75 State
Street Boston, MA 02109 658,260(7) 8.8 0 -- 658,260(7) 5.1
Peter C. Brown 156,750(8) 2.3 0 -- 156,750(8) 1.2
Philip M. Singleton 172,750(8) 2.5 0 -- 172,750(8) 1.3
Richard T. Walsh 33,425(8) * 0 -- 33,425(8) *
John P. Mascotte 1,000 * 0 -- 1,000 *
Paul E. Vardeman 300 * 0 -- 300 *
All directors and
executive officers as a
group 3,116,119 42.9 11,157,000 100 472,100 3.5
<CAPTION>
AMCE CLASS B
STOCK
NAMES OF BENEFICIAL ---------------------------
OWNERS AND ADDRESSES OF % OF
CERTAIN 5% OWNERS NUMBER CLASS
-------------- -----------
<S> <C> <C>
Durwood, Inc. -- --
Stanley H. Durwood 5,015,657(4)(5) 100
Carol D. Journagan 0 --
Edward D. Durwood 0 --
Thomas A. Durwood 0 --
Elissa D. Grodin 0 --
Brian H. Durwood 0 --
Peter J. Durwood 0 --
Vanguard Explorer Fund,
Inc. c/o The Vanguard
Group of Investment
Companies P.O. Box 2600
Valley Forge, PA 19482 0 --
Wellington Management
Company, LLP 75 State
Street Boston, MA 02109 0 --
Peter C. Brown 0 --
Philip M. Singleton 0 --
Richard T. Walsh 0 --
John P. Mascotte 0 --
Paul E. Vardeman 0 --
All directors and
executive officers as a
group 5,015,657 100
</TABLE>
- --------------
* less than 1%
46
<PAGE>
(1) The 1989 Trust and the 1992 Trust hold approximately 75% of the voting
power of the outstanding capital stock of DI. Record ownership of the DI shares
is in the name of the 1992 Trust, which has issued its voting trust certificates
to the 1989 Trust. AAE holds approximately 25% of the voting power of DI. Mr.
Stanley H. Durwood is the sole director of DI and is Chairman of the Board,
Chief Executive Officer and a Director of AMCE and AMC.
Mr. Stanley H. Durwood is the sole acting trustee of the 1989 Trust and the
1992 Trust and as such has sole voting power over the shares of AMCE stock held
by DI; the named successor trustees under Mr. Stanley H. Durwood's trusts are
Messrs. Charles J. Egan, Jr., a director of AMCE, and Raymond F. Beagle, Jr.,
general counsel to the Company. Under the terms of his revocable voting trust
(the 1992 Trust), Mr. Stanley H. Durwood has all voting powers with respect to
shares held therein during his lifetime. Thereafter, all voting rights with
respect to such shares vest in his successor trustees and any additional
trustees whom they might appoint, who shall exercise such rights by majority
vote. Unless revoked by Mr. Stanley H. Durwood or otherwise terminated or
extended in accordance with its terms, the 1992 Trust will terminate in 2030.
Mr. Stanley H. Durwood may be deemed to share investment power with the
Durwood Children with respect to such shares held of record by DI. As reported
in the Schedule 13Ds filed by Mr. Stanley H. Durwood and DI and by the Durwood
Children and AAE, Mr. Stanley H. Durwood and the Durwood Children have entered
into the Durwood Family Settlement Agreement expressing their intention to
pursue certain transactions to dissolve AAE and to cause shares of AMCE held by
DI to be distributed to members of the Durwood family through the Merger of DI
into AMCE. Thereafter, the Durwood Family Stockholders intend to sell 3,000,000
shares of AMCE Common Stock in the Secondary Offering, which will be made only
by means of a prospectus. If the proposed transactions are consummated, Mr.
Stanley H. Durwood will retain approximately 4.5 million shares (or 100%) of
AMCE Class B Stock and the Durwood Children will retain in the aggregate
approximately 6.3 million shares of AMCE Common Stock, or 46.6% of the shares of
that class (33.1% assuming full conversion of Convertible Preferred Stock).
Based on voting shares outstanding as of May 19, 1997, the shares of AMCE Class
B Stock to be retained by Mr. Stanley H. Durwood will represent 77.0% of the
combined voting power of AMCE's voting stock (70.4% assuming full conversion of
Convertible Preferred Stock). However, provisions of the Durwood Family
Settlement Agreement could result in an adjustment pursuant to which Mr. Stanley
H. Durwood would deliver additional shares of AMCE stock to the Durwood
Children. Mr. Stanley H. Durwood has agreed with the Durwood Children that if
the price per share to the public of the 2.5 million shares of AMCE Common Stock
proposed to be sold by the Durwood Children in the Secondary Offering following
the Merger is less than $18, Mr. Stanley H. Durwood will pay the Durwood
Children the difference between such sale price and $18 (net of applicable
underwriting commissions), up to $20 million in aggregate amount, in shares of
AMCE Common Stock, as an adjustment to the original allocation of shares to be
received by the Durwood Children in the Merger. Mr. Stanley H. Durwood's
holdings will diminish and the Durwood Children's holdings will increase if the
Durwood Children acquire additional shares under such Share Adjustment. However,
based on the number of shares of AMCE Common Stock and AMCE Class B Stock
outstanding as of May 19, 1997, the Share Adjustment should not result in Mr.
Stanley H. Durwood owning shares with less than 50% of the combined voting power
of the outstanding AMCE stock unless the Durwood Family Stockholders determine
to proceed with a Secondary Offering of the family's shares at a price to the
public of less than approximately $6.95 per share. Mr. Stanley H. Durwood's
voting control also will be diluted if he is obligated to dispose of shares to
honor tax and other indemnity obligations made to the Durwood Children and AMCE
in connection with the Merger and other related transactions, or if additional
shares of AMCE Common Stock are issued under AMCE's existing employee benefit
plans.
(2) As stated in note (1), as a result of the Durwood Family Settlement
Agreement, the Durwood Children may share investment power with respect to the
shares owned of record by DI and have filed ownership reports with the
Commission to such effect.
47
<PAGE>
(3) Includes 150 shares owned directly by Mr. Stanley H. Durwood and 55,000
shares subject to presently exercisable stock options.
(4) The shares of AMCE Class B Stock are convertible into AMCE Common Stock
on a share-for-share basis. The number and percentage of shares of AMCE Common
Stock shown as beneficially owned do not give effect to the conversion option.
(5) Does not give effect to the proposed sale of shares by certain of the
Durwood Family Stockholders in the Secondary Offering. See "--Material Terms of
the Merger--The Registration Agreement."
(6) This is the number of shares of AMCE Common Stock that would be obtained
upon conversion of Convertible Preferred Stock reported as owned by Vanguard
Explorer Fund, Inc. in its Schedule 13G dated February 10, 1997. Vanguard
Explorer Fund, Inc. reported that it has sole power to vote such shares and
shared power to dispose of them.
(7) This is the number of shares of AMCE Common Stock reported as owned by
Wellington Management Company, LLP in its Schedule 13G dated February 12, 1997,
which number, AMCE has been supplementally advised, represents the number of
shares that would be obtained upon conversion of Convertible Preferred Stock
beneficially owned by Wellington Management Company, LLP. Of these shares
(which, based on the report, are believed to include the shares owned by
Vanguard Explorer Fund, Inc. referred to in note (6)), Wellington Management
Company, LLP reports that it has shared voting power with respect to 37,584
shares and shared dispositive power with respect to 658,260 shares.
(8) Includes shares subject to presently exercisable options to purchase AMCE
Common Stock under AMCE's 1984 and 1994 Stock Option and Incentive Plans, as
follows: Mr. Peter C. Brown-- 156,750 shares; Mr. Philip M. Singleton--156,750
shares; Mr. Richard T. Walsh--33,375 shares; and all officers as a group--
454,750 shares. No adjustments will be made to outstanding options held by
employees as a result of the Merger.
MANAGEMENT AND OPERATIONS OF AMCE AFTER THE MERGER
There will be no changes in the operations of AMCE resulting from the
Merger. However, pursuant to the Derivative Action Settlement Agreement, two New
Independent Directors have been nominated by the Company and elected to serve on
the AMCE Board and will be empowered for three years to approve or disapprove
all transactions between the Company and the Durwood Family Stockholders and all
employment and compensation matters involving the Durwood Family Stockholders,
other than Mr. Stanley H. Durwood and any other Durwood Family Stockholder who
is an officer of AMCE. The current directors and officers of AMCE will continue
to serve as such following the Merger until their successors are duly elected or
appointed or their earlier resignation or removal.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the Merger to AMCE, DI and their shareholders. The summary is
based upon the Code, administrative pronouncements, judicial decisions and
Department of Treasury regulations, subsequent changes to any of which may
affect the tax consequences described herein. The summary does not purport to be
a comprehensive description of all of the tax consequences applicable to a
particular taxpayer. In particular, the summary does not address the tax
treatment to holders subject to special tax rules, such as banks, insurance
companies, dealers in securities or stockholders who acquired their stock
pursuant to the exercise of employee stock options or otherwise as compensation.
In addition, the summary only applies to a holder who is a U.S. citizen or
resident, a U.S. corporation, partnership or other entity created or organized
under the laws of the United States, or an estate or trust the income of which
is subject to
48
<PAGE>
U.S. federal income taxation regardless of its source and who holds shares as
capital assets. Shareholders are urged to consult their tax advisor as to the
particular United States federal income tax consequences to them of the Merger
and as to the foreign, state, local and other tax consequences thereof.
Chadbourne & Parke LLP has provided an opinion to the effect that, under
current law, the Merger will qualify as a tax-free reorganization under Section
368 of the Code, and accordingly, that the Merger will have the tax consequences
set forth below. Such opinion is subject to the conditions, qualifications and
assumptions set forth therein and has been filed as an exhibit to the
Registration Statement of which this Proxy--Information Statement/Prospectus is
a part. As stated above, it is a condition to the consummation of the Merger
that no dissenters' rights shall have been exercised by any of the Durwood
Family Stockholders, and the opinion of Chadbourne & Parke LLP is based upon the
assumption that this condition will be satisfied. Opinions of counsel are not
binding on the Internal Revenue Service ("IRS") or the courts, and the parties
do not intend to request a ruling from the IRS with respect to the Merger.
Accordingly, there can be no assurance that the IRS will not challenge such
conclusion or that a court will not sustain such challenge.
TAX CONSEQUENCES TO AMCE AND DI. The Merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. As a result,
no taxable income, gain or loss will be recognized by either AMCE or DI in the
Merger.
TAX CONSEQUENCES TO AMCE STOCKHOLDERS. The Merger will not be treated as a
sale or exchange by the stockholders of AMCE. As a consequence thereof, such
stockholders will recognize no taxable income, gain or loss as a result of the
Merger.
TAX CONSEQUENCES TO NON-DISSENTING DI SHAREHOLDERS. Subject to the
discussion below concerning fractional shares, no taxable income, gain or loss
will be recognized to the shareholders of DI as a result of the Merger, except
to the extent of any cash received by Mr. Stanley Durwood, the 1989 Trust and/or
the 1992 Trust pursuant to the Indemnification Agreement in respect of the
utilization of certain tax attributes realized by AMCE.
The aggregate tax basis of the shares of AMCE stock received by the DI
shareholders, including the fractional shares deemed to be received, will be the
same as the aggregate tax basis of the shares of DI stock exchanged thereof. The
holding period of the shares of AMCE stock received in the Merger will include
the holding period of the shares of DI stock surrendered therefor.
DI shareholders who receive cash with respect to fractional shares will be
treated as having received such fractional shares pursuant to the Merger and
then as having sold those fractional shares for cash. Such shareholders will
recognize gain or loss with respect to such fractional shares in an amount equal
to the difference between the tax basis allocated to such fractional shares and
the cash received in respect thereof. Any such gain or loss will be a capital
gain or loss and will constitute long-term capital gain or loss if the holding
period of such fractional shares (as determined above) exceeds one year.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The members of the Special Committee are parties to the Derivative Action.
Although they will not make any monetary payment out of personal funds as a
result of, or be subject to sanctions under, the Derivative Action Settlement
Agreement, because they have an interest in such agreement, they may also be
deemed to have an interest in the outcome of the vote on the proposed Merger
Agreement. As described above, the Merger has also been approved by the New
Independent Directors of AMCE and by the full AMCE Board. Upon the
recommendation of the Special Committee, a condition to the Merger is that the
Merger Agreement also receive approval by the holders of a majority of the
outstanding shares of AMCE Common Stock (other than DI, the Durwood Family
Stockholders, their spouses, children sharing the same household and directors
and officers of AMCE) present and voting at the AMCE Special Meeting.
49
<PAGE>
Mr. Stanley H. Durwood also is a party to the Derivative Action. Because he
also has an interest in the Derivative Action Settlement Agreement, he also may
also be deemed to have an interest in the outcome of the vote of the proposed
Merger Agreement.
DISSENTERS' RIGHTS
Under the DGCL, holders of AMCE Common Stock have no dissenters' rights with
respect to the Merger. Holders of AMCE Class B Stock have appraisal rights under
the DGCL in connection with the Merger; however, DI is the sole stockholder of
AMCE Class B Stock and is a party to the Merger Agreement.
Under Section 351.455 of the General and Business Corporation Law of
Missouri (the "GBCLM"), shareholders of DI who do not vote for approval of the
Merger Agreement and who follow certain other procedures summarized below will
have the right to dissent from and obtain payment in cash of the fair value of
their shares in the event of the consummation of the Merger. However, AMCE may
elect to terminate the Merger Agreement if any of the DI shareholders exercises
dissenters' rights. The following is a summary of the procedures which must be
followed by any DI shareholder who wishes to dissent and demand payment for his
or her shares in the event of consummation of the Merger. Holders receiving cash
upon exercise of dissenters' rights will recognize a gain or loss for federal
income tax purposes. See "The Merger--Certain Federal Income Tax Consequences."
A shareholder may assert dissenters' rights only if such shareholder:
(i) Delivers to DI prior to or at the DI Special Meeting a written
objection to the Merger Agreement. Such objection should be delivered or
mailed in time to arrive before the vote at such DI Special Meeting to
Durwood, Inc., 106 West 14th Street, Kansas City, Missouri, 64105, Attn:
Secretary. Such a written objection must be made in addition to, and
separate from, any proxy or other vote against adoption and approval of the
Merger. Neither a vote against, a failure to vote for, nor an abstention
from voting will satisfy the requirement that a written objection be
delivered to DI before the vote is taken. Unless a shareholder files the
written objection as provided above, he or she will not have any rights as a
dissenting shareholder; and
(ii) Does NOT vote for approval of the Merger Agreement. A shareholder
who abstains from voting or who does not vote will not be foreclosed from
exercising dissenters' rights; and
(iii) Delivers to AMCE within twenty days after the Effective Date of
the Merger a written demand for payment of the fair value of his or her
shares of DI stock as of the day prior to the date on which the vote for
approval was taken and which includes a statement of the number and class of
shares owned. Such demand must be mailed or delivered to AMCE at AMC
Entertainment Inc., 106 West 14th Street, Kansas City, Missouri, 64105,
Attn: Secretary. Any shareholder who fails to make a written demand for
payment within the twenty-day period after the Effective Date of the Merger
shall be conclusively presumed to have consented to the Merger Agreement and
shall be bound by the terms thereof. Neither a vote against the Merger nor
the written objection referred to in paragraph (i) satisfies the written
demand requirement referred to in this paragraph (iii).
A beneficial owner of shares who is not the record owner may not assert
dissenters' rights. If the stock is owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, or by a nominee, the written demand
asserting dissenters' rights must be executed by the fiduciary or nominee. If
the stock is owned of record by more than one person, as in a joint tenancy or
tenancy in common, the demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for a shareholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in executing the demand, he
is acting as agent for the record owner.
50
<PAGE>
If within thirty days of the Effective Date the value of a dissenting
shareholder's shares is agreed upon between the shareholder and AMCE, AMCE will
make payment to the shareholder within ninety days of the Effective Date, upon
the shareholder's surrender of his or her share certificates. Upon payment of
the agreed value, the dissenting shareholder will cease to have any interest in
such shares or in AMCE.
If the dissenting shareholder and AMCE do not agree on the fair value of the
shares within thirty days of the Effective Date, the dissenting shareholder may,
within sixty days thereafter, file a petition in any court of competent
jurisdiction within Jackson County, Missouri asking for a finding and a
determination of the fair value of the shares. The dissenting shareholder is
entitled to judgment against AMCE for the amount of such fair value as of the
day prior to the date on which such vote was taken approving the Merger
Agreement, together with interest thereon to the date of judgment. The judgment
is payable only upon and simultaneously with the surrender to AMCE of the
certificates representing said shares. Upon payment of the judgment, the
dissenting shareholder shall cease to have any interest in such shares or in
AMCE. Unless the dissenting shareholder shall file such petition within the time
herein limited, such shareholder and all persons claiming under the shareholder
shall be conclusively presumed to have approved and ratified the Merger
Agreement and shall be bound by the terms thereof.
The right of a dissenting shareholder to be paid the fair value for his or
her shares will cease if the shareholder fails to comply with the procedures of
the GBCLM or if the Merger Agreement is terminated for any reason.
IT IS A CONDITION TO AMCE'S OBLIGATION TO CONSUMMATE THE MERGER THAT NO DI
SHAREHOLDER SHALL HAVE EXERCISED HIS OR HER DISSENTER'S RIGHTS.
ACCOUNTING TREATMENT
Management expects that the Merger will be accounted for as a corporate
reorganization and, accordingly, the recorded balances for consolidated assets,
liabilities, total stockholders' equity and results of operations of the Company
will not be affected.
51
<PAGE>
CAPITALIZATION OF THE COMPANY
The following table sets forth the total capitalization of the Company
(including short-term debt) as of April 3, 1997 and as adjusted to give pro
forma effect to the Merger. This table should be read in conjunction with the
Company's Consolidated Financial Statements and the Notes thereto included
elsewhere herein.*
<TABLE>
<CAPTION>
AS OF APRIL 3, 1997
-------------------------
AS ADJUSTED
FOR MERGER ACTUAL
------------ -----------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
Short-term debt (including current portion of long-term debt).......................... $ 3,441 $ 3,441
Long-term debt:........................................................................
Credit Facility(1)................................................................... 110,000 110,000
9 1/2% Senior Subordinated Notes due 2009.......................................... 198,940 198,940
Capital lease obligations and other long-term debt................................... 61,343 61,343
Stockholders' equity
$1.75 Cumulative Convertible Preferred Stock, par value 66 2/3 CENTS per share,
10,000,000 shares authorized; 3,303,600 shares issued and outstanding (aggregate
liquidation value of 82,590,000)................................................... 2,202 2,202
Common Stock, par value 66 2/3 CENTS per share, 45,000,000 shares authorized;
6,604,469 shares issued; 12,745,812 as adjusted for Merger(2)...................... 8,497 4,403
Class B Stock, par value 66 2/3 CENTS per share, 30,000,000 shares authorized;
11,157,000 shares issued and outstanding; 5,015,657 as adjusted for Merger......... 3,344 7,438
Additional paid-in capital........................................................... 107,781 107,781
Foreign currency translation adjustment.............................................. (2,048) (2,048)
Retained earnings.................................................................... 49,605 50,605
------------ -----------
169,381 170,381
Less Common Stock in treasury, at cost, 20,500 shares................................ 369 369
------------ -----------
Total stockholders' equity......................................................... 169,012 170,012
------------ -----------
Total capitalization................................................................... $ 542,736 $ 543,736
------------ -----------
------------ -----------
</TABLE>
- --------------
(1) As of April 3, 1997, the total availability under the Credit Facility was
$425 million of which the Company had borrowed $110 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources."
(2) Does not include 5,695,406 shares of AMCE Common Stock issuable upon the
conversion of Convertible Preferred Stock, 11,157,000 shares reserved for
issuance upon conversion of AMCE Class B Stock (5,015,657 as adjusted for
the Merger) or 774,500 shares reserved for issuance upon the exercise of
outstanding employee stock options and vesting of outstanding performance
share awards, at the maximum level of performance attainment.
* For information concerning the Company's commitments and contingencies, see
Notes 8 and 10 to AMCE's Consolidated Financial Statements included
elsewhere herein.
52
<PAGE>
INFORMATION ABOUT THE COMPANY
DIVIDENDS AND PRICE RANGE OF AMCE COMMON STOCK
AMCE Common Stock is listed on the American and Pacific Stock Exchanges
under the symbol AEN. There is no established trading market for AMCE Class B
Stock. The table below sets forth, for the periods indicated, the high and low
closing prices of the AMCE Common Stock as reported on the AMEX composite tape.
<TABLE>
<CAPTION>
PRICE RANGE OF AMCE
COMMON STOCK
HIGH LOW
--------- ---------
<S> <C> <C>
YEAR ENDED MARCH 30, 1995:
1st Quarter................................................................ $ 12.75 $ 9.75
2nd Quarter................................................................ 13.25 11.12
3rd Quarter................................................................ 12.37 10.37
4th Quarter................................................................ 12.62 9.87
YEAR ENDING MARCH 28, 1996:
1st Quarter................................................................ $ 14.50 $ 11.00
2nd Quarter................................................................ 18.12 13.50
3rd Quarter................................................................ 23.50 17.62
4th Quarter................................................................ 24.12 19.25
YEAR ENDING APRIL 3, 1997
1st Quarter................................................................ $ 33.87 $ 23.12
2nd Quarter................................................................ 27.87 15.87
3rd Quarter................................................................ 19.50 13.75
4th Quarter................................................................ 20.25 13.87
</TABLE>
On May 3, 1996, the last trading day preceding the announcement of the
Durwood Family Settlement Agreement, the reported last sale price of AMCE Common
Stock on the AMEX was $25.75. On April 16, 1997, the day preceding announcement
that the Merger Agreement had been entered into, the reported last sale price of
AMCE Common Stock on the AMEX was $20.00. On , the date preceding
the date of the Proxy-Information Statement/Prospectus, the reported last sale
price of AMCE Common Stock on the AMEX was $ . As of May 19, 1997, there
were 470 holders of record of AMCE Common Stock. See "The Merger--General
Effects of the Merger" for the effect of the Merger on the percentage of present
holdings of AMCE Common Stock and AMCE Class B Stock by directors, officers and
persons beneficially owning in excess of 5% of either class of such stock.
AMCE's Certificate of Incorporation provides that holders of AMCE Common
Stock and AMCE Class B Stock shall receive, pro rata per share, such cash
dividends as may be declared from time to time by the AMCE Board. Certain
provisions of the Note Indenture and the Credit Facility govern the payment of
dividends on and purchase by AMCE of its capital stock. Presently, it is not
anticipated that the most restrictive of these provisions, as set forth in the
Credit Facility, will affect the ability of AMCE to pay dividends in the
foreseeable future. See "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." Except
for a $1.14 per share dividend declared in connection with a recapitalization
that occurred in August 1992, AMCE has not declared a dividend on shares of AMCE
Common Stock or AMCE Class B Stock since fiscal 1989. Any payment of cash
dividends on AMCE Common Stock in the future will be at the discretion of the
AMCE Board and will depend upon such factors as earnings levels, capital
requirements, AMCE's financial condition and other factors deemed relevant by
the AMCE Board. Currently, AMCE does not contemplate declaring or paying any
dividends on its Common Stock or Class B Stock.
53
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected data regarding the Company's five
most recent fiscal years ended April 3, 1997. The historical financial
information for each of the fiscal years specified below has been derived from
the Company's consolidated financial statements for such periods. The unaudited
pro forma financial information of the Company as of and for the fiscal year
ended April 3, 1997 has been adjusted to give effect to the Merger and Note
Offering, as set forth in the Notes to the Company's Condensed Pro Forma
Financial Statements included elsewhere herein. Such pro forma information does
not purport to represent what the Company's results of operations would have
been had the Merger and Note Offering occurred on the dates presented or to
project the Company's financial position or results of operations for any future
period. The historical financial data set forth below is qualified in its
entirety by reference to the Company's Consolidated Financial Statements and the
Notes thereto included elsewhere in this Proxy--Information
Statement/Prospectus. The historical and pro forma financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations", the Company's Consolidated
Financial Statements and the Notes thereto and Durwood, Inc.'s Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Proxy--Information Statement/Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------------------------------------------
APRIL 3, 1997
PRO FORMA(1)(2)(6)
-----------------------
MERGER AND
NOTE APRIL 3, MARCH 28, MARCH 30, MARCH 31, APRIL 1,
OFFERING 1997 1996 1995 1994 1993
COMBINED MERGER ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(2)
------------ --------- ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues................. $ 749,597 $ 749,597 $ 749,597 $ 655,972 $ 563,344 $ 586,300 $ 403,775
Total cost of operations....... 580,002 580,002 580,002 491,358 432,763 446,957 308,848
General and administrative..... 56,647 56,647 56,647 52,059 41,639 40,559 37,582
Depreciation and
amortization................. 59,803 59,803 59,803 43,886 37,913 38,048 28,175
Estimated loss on future
disposition of assets........ -- -- -- -- -- -- 2,500
------------ --------- ------------ ------------ ------------ ------------ ------------
Operating income............... 53,145 53,145 53,145 68,669 51,029 60,736 26,670
Interest expense............... 30,822 22,022 22,022 28,828 35,908 36,375 31,401
Investment income.............. 856 856 856 7,052 10,013 1,156 8,239
Minority interest.............. -- -- -- -- -- 1,599 --
Gain (loss) on disposition of
assets....................... (84) (84) (84) (222) (156) 296 9,638
------------ --------- ------------ ------------ ------------ ------------ ------------
Earnings before income taxes
and extraordinary item....... 23,095 31,895 31,895 46,671 24,978 27,412 13,146
Income tax provision........... 9,820 12,900 12,900 19,300 (9,000) 12,100 5,400
------------ --------- ------------ ------------ ------------ ------------ ------------
Earnings before extraordinary
item......................... 13,275 18,995 18,995 27,371 33,978 15,312 7,746
Extraordinary item............. -- -- -- (19,350) -- -- (6,483)
------------ --------- ------------ ------------ ------------ ------------ ------------
Net earnings................... $ 13,275 $ 18,995 $ 18,995 $ 8,021 $ 33,978 $ 15,312 $ 1,263
------------ --------- ------------ ------------ ------------ ------------ ------------
------------ --------- ------------ ------------ ------------ ------------ ------------
Preferred dividends............ 5,907 5,907 5,907 7,000 7,000 538 256
------------ --------- ------------ ------------ ------------ ------------ ------------
Net earnings for common
shares....................... $ 7,368 $ 13,088 $ 13,088 $ 1,021 $ 26,978 $ 14,774 $ 1,007
------------ --------- ------------ ------------ ------------ ------------ ------------
------------ --------- ------------ ------------ ------------ ------------ ------------
Earnings per share before
extraordinary item:
Primary........................ $ .42 $ .74 $ .74 $ 1.21 $ 1.63 $ .89 $ .46
Fully diluted.................. $ .41 $ .73 $ .73 $ 1.20 $ 1.45 $ .89 $ .46
Earnings per share:
Primary........................ $ .42 $ .74 $ .74 $ .06(4) $ 1.63 $ .89 $ .06(3)
Fully diluted.................. $ .41 $ .73 $ .73 $ .06(4) $ 1.45 $ .89 $ .06(3)
Common dividends per share....... $ -- $ -- $ -- $ -- $ -- $ -- $ 1.14
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------------------------------------------
APRIL 3, 1997
PRO FORMA(1)(2)(6)
-----------------------
MERGER AND
NOTE APRIL 3, MARCH 28, MARCH 30, MARCH 31, APRIL 1,
OFFERING 1997 1996 1995 1994 1993
COMBINED MERGER ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(2)
------------ --------- ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND STATISTICAL DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average number of shares
outstanding:
Primary........................ 17,726 17,726 17,726 16,795 16,593 16,521 16,217
Fully diluted.................. 17,940 17,940 17,940 17,031 23,509 16,550 16,217
BALANCE SHEET DATA
Cash, equivalents and
investments.................. $ 24,715 $ 24,715 $ 24,715 $ 10,795 $ 140,377 $ 151,469 $ 50,106
Total assets................... 718,213 718,213 718,213 483,458 522,154 501,276 374,102
Total debt (including capital
lease obligations)........... 373,724 373,724 373,724 188,172 267,504 268,188 255,302
Stockholders' equity........... 169,012 169,012 170,012 158,918 157,388 130,404 18,171
OTHER FINANCIAL DATA
EBITDA(5)...................... $ 112,948 $ 112,948 $ 112,948 $ 112,555 $ 88,942 $ 98,784 $ 57,345
Cash flows provided by
operating activities......... 134,074 134,074 134,074 96,847 44,366 63,680 29,062
Cash flows provided by (used
in) investing activities..... (283,917) (283,917) (283,917) (66,848) 3,664 (111,505) 4,594
Cash flows provided by (used
in) financing activities..... 163,982 163,982 163,982 (90,437) (9,116) 56,147 (21,022)
Capital expenditures........... 253,380 253,380 253,380 120,796 56,403 10,651 8,786
STATISTICAL DATA (AT PERIOD END)
Number of theatres operated.... 228 228 228 226 232 236 243
Number of screens operated..... 1,957 1,957 1,957 1,719 1,630 1,603 1,617
Screens per theatre............ 8.6 8.6 8.6 7.6 7.0 6.8 6.7
</TABLE>
- --------------
(1) Fiscal 1997, 1996, 1995 and 1994 include the effects from the acquisition of
EEP on May 28, 1993.
(2) Fiscal 1997 consists of 53 weeks. All other years have 52 weeks.
(3) Fiscal 1993 includes a $6,483,000 extraordinary loss equal to $.40 per
common share.
(4) Fiscal 1996 includes a $19,350,000 extraordinary loss equal to $1.15 per
common share.
(5) Represents operating income plus depreciation and amortization plus
estimated loss on future disposition of assets. EBITDA is a financial
measure commonly used in the Company's industry and should not be construed
as an alternative to operating income (as determined in accordance with
GAAP). EBITDA as determined by the Company may not be comparable to EBITDA
as reported by other companies. In addition, EBITDA is not intended to
represent cash flow and does not represent the measure of cash available for
discretionary uses. EBITDA is a non-GAAP measure, but has been used by
lenders and stockholders as additional information for estimating the
Company's value and evaluating its ability to service debt.
(6) See the Company's Condensed Pro Forma Financial Statements and the Notes
thereto included elsewhere herein.
55
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
As a result of the commencement of international operations during fiscal
1997, the Company is disaggregating its domestic and international exhibition
operations and the Company's on-screen advertising and other business in order
to provide more information as to the Company's revenues, cost of operations,
depreciation and amortization, and general and administrative expenses as set
forth in the table below for the fifty-three and fifty-two week periods ended
April 3, 1997 and March 28, 1996.
<TABLE>
<CAPTION>
YEARS (53/52 WEEKS) ENDED
-------------------------------------
APRIL 3, MARCH 28,
1997 1996 % CHANGE
--------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Domestic
Admissions........................................... $ 479,629 $ 431,361 11.2%
Concessions.......................................... 222,945 196,645 13.4
Other................................................ 15,763 15,096 4.4
--------- ----------- ---
718,337 643,102 11.7
International
Admissions........................................... 13,322 -- --
Concessions.......................................... 2,222 -- --
Other................................................ 49 -- --
--------- ----------- ---
15,593 -- --
On-screen advertising and other........................ 15,667 12,870 21.7
--------- ----------- ---
Total revenues....................................... $ 749,597 $ 655,972 14.3%
--------- ----------- ---
--------- ----------- ---
COST OF OPERATIONS
Domestic
Film rentals......................................... $ 239,480 $ 215,099 11.3%
Concession costs..................................... 36,045 30,417 18.5
Rent................................................. 75,116 64,813 15.9
Other................................................ 198,555 172,087 15.4
--------- ----------- ---
549,196 482,416 13.8
International
Film rentals......................................... 7,719 -- --
Concession costs..................................... 703 -- --
Rent................................................. 4,945 -- --
Other................................................ 5,377 -- --
--------- ----------- ---
18,744 -- --
On-screen advertising and other........................ 12,062 8,942 34.9
--------- ----------- ---
Total cost of operations............................. $ 580,002 $ 491,358 18.0%
--------- ----------- ---
--------- ----------- ---
GENERAL AND ADMINISTRATIVE
Domestic and corporate............................... $ 45,558 $ 44,200 3.1%
International........................................ 6,864 4,550 50.9
On-screen advertising and other...................... 4,225 3,309 27.7
--------- ----------- ---
Total general and administrative................... $ 56,647 $ 52,059 8.8%
--------- ----------- ---
--------- ----------- ---
DEPRECIATION AND AMORTIZATION
Domestic and corporate............................... $ 56,623 $ 42,550 33.1%
International........................................ 1,436 -- --
On-screen advertising and other...................... 1,744 1,336 30.5
--------- ----------- ---
Total depreciation and amortization................ $ 59,803 $ 43,886 36.3%
--------- ----------- ---
--------- ----------- ---
</TABLE>
56
<PAGE>
YEARS (53/52 WEEKS) ENDED APRIL 3, 1997 AND MARCH 28, 1996
REVENUES. Total revenues increased 14.3%, or $93,625,000, during the year
(53 weeks) ended April 3, 1997 compared to the year (52 weeks) ended March 28,
1996.
Total domestic revenues increased 11.7%, or $75,235,000, from the prior
year. Admissions revenues increased 11.2%, or $48,268,000, due to a 6.4%
increase in attendance, which contributed $27,658,000 of the increase, and a
4.7% increase in average ticket prices, which contributed $20,610,000 of the
increase. The increase in attendance was due primarily to the Company's megaplex
theatres (theatres having at least 14 screens with predominately stadium-style
seating). Attendance at megaplex theatres increased during the year as a result
of the addition of 12 new megaplex theatres with 248 screens and from the
operation for a full fiscal year of the Company's remaining five domestic
megaplex theatres with 98 screens that were opened in fiscal 1996. The increase
in attendance from megaplex theatres was partially offset by a decrease in
attendance at multiplex theatres (theatres generally without stadium-style
seating and having less than 14 screens) and the closure or sale of 15 theatres
with 76 screens. Attendance at multiplex theatres decreased as a result of
competitive factors. Also, during the first nine months of the fiscal year,
attendance at all theatres was impacted by film product from the Company's key
suppliers which did not deliver the results achieved in the prior fiscal year.
The increase in average ticket prices is due to price increases and the growing
number of megaplexes in the Company's circuit, which yield higher average ticket
prices than multiplexes. Concessions revenues at domestic theatres increased by
13.4%, or $26,300,000, due to a 6.9% increase in average concessions per patron,
which contributed $13,692,000 of the increase, and the increase in total
attendance, which contributed $12,608,000 of the increase. The increase in
average concessions per patron is attributable to the introduction of new
concessions products and the increasing number of megaplexes in the Company's
circuit, where concession spending per patron is higher than multiplex theatres.
Total international revenues were the result of admissions and concessions
revenues from the Company's two international theatres, the Canal City 13
located in Fukuoka, Japan and the Arrabida 20 located in Porto, Portugal, which
opened during the first and third quarters of fiscal 1997, respectively.
Admissions and concessions revenues accounted for 85% and 14% of total
international revenues, respectively. The Company's initial attendance at the
Canal City 13 was negatively impacted by film distributors in Japan who
restricted the Company's ability to obtain film product until approximately two
weeks after its competitors had received it. This delay in releasing films to
the Company has generally been eliminated.
On-screen advertising and other revenues increased 21.7%, or $2,797,000, due
primarily to an increase in the number of screens served by the Company's
on-screen advertising business, a result of its expansion program.
COST OF OPERATIONS. Total cost of operations increased 18.0%, or
$88,644,000, during the year (53 weeks) ended April 3, 1997 compared to the year
(52 weeks) ended March 28, 1996.
Total domestic cost of operations increased 13.8%, or $66,780,000, from the
prior year. Film rentals expense increased 11.3%, or $24,381,000, due to higher
admissions revenues. As a percentage of admissions revenues, film rentals
expense was 49.9% in each year. The 18.5%, or $5,628,000, increase in concession
costs is attributable to the increase in concessions revenues. As a percentage
of concessions revenues, concession costs increased from 15.5% to 16.2% due
primarily to increases in raw popcorn costs and the lower margins on new
concessions products. Rent expense increased 15.9%, or $10,303,000, due to the
higher number of screens in operation. Other cost of operations increased 15.4%,
or $26,468,000, from the prior year due to the higher number of screens in
operation, $1,825,000 of advertising expenses associated with the opening of new
theatres and higher expenses associated with the Company's theatre management
development program.
57
<PAGE>
Total international cost of operations were the result of expenses
associated with the Company's new theatres in Japan and Portugal. As a
percentage of admissions revenues, film rentals expense was 57.9% primarily
because film rentals in Japan are generally higher than those domestically.
Concession costs were 31.6% of concessions revenues due to the high procurement
costs of concessions products sourced from the United States. As a percentage of
total revenues, rent expense was 31.7% as a result of low attendance and
admissions revenues and the higher real estate costs in Japan.
On-screen advertising and other cost of operations increased 34.9%, or
$3,120,000, as a result of the higher number of screens served and related
start-up expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
8.8%, or $4,588,000, during the year (53 weeks) ended April 3, 1997.
Domestic and corporate general and administrative expenses increased 3.1%,
or $1,358,000, primarily due to increases in costs associated with the Company's
development of theatres and increased pension and retirement expenses of
$1,992,000. These increases were partially offset by a decrease of $3,500,000 in
the current year's bonus expense and severance payments of $967,000 for two
former executive officers made during the prior year.
International general and administrative expenses increased 50.9%, or
$2,314,000, due primarily to increases in costs associated with the Company's
development of new theatres and other expenses to support the Company's
international operations and expansion plan.
General and administrative expenses associated with on-screen advertising
and other increased 27.7%, or $916,000, due primarily to an increase in payroll
and related costs to support the expansion program at the Company's on-screen
advertising business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
36.3%, or $15,917,000, during the year (53 weeks) ended April 3, 1997. This
increase was caused by an increase in employed theatre assets resulting from the
Company's expansion plan and an impairment loss of $7,231,000 due to expected
declines in future cash flows of certain theatres.
OPERATING INCOME. Operating income decreased 22.6%, or $15,524,000, during
the year (53 weeks) ended April 3, 1997. The decrease in operating income is
attributable to the attendance and revenue decline at multiplex theatres and an
increase in domestic and corporate general and administrative expenses of
$1,358,000, the effects of which were partially offset by an increase in
attendance and revenues at megaplex theatres. Additionally, operating income was
reduced by operating losses of $4,587,000 from the Company's international
theatres in Japan and Portugal, an increase in international general and
administrative expenses of $2,314,000 and an increase in operating losses of
$1,647,000 from the Company's on-screen advertising business.
INTEREST EXPENSE. Interest expense decreased 23.6%, or $6,806,000, during
the year (53 weeks) ended April 3, 1997 compared to the prior year. The decrease
in interest expense resulted from lower rates under the Company's $425 million
credit facility (the "Credit Facility"), which was partially offset by an
increase in average outstanding borrowings related to the Company's expansion
plan.
INVESTMENT INCOME. Investment income decreased 87.9%, or $6,196,000, during
the year (53 weeks) ended April 3, 1997 due to a decrease in outstanding cash
and investments compared to the prior year. Cash and investments decreased as a
result of the Company's redemption of substantially all of its 11 7/8% Senior
Notes due 2000 ("Senior Notes") and 12 5/8% Senior Subordinated Notes due 2002
("12 5/8% Senior Subordinated Notes") on December 28, 1995.
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Earnings before income
taxes and extraordinary item decreased by 31.7%, or $14,776,000, during the year
(53 weeks) ended April 3, 1997 due primarily to the $15,524,000 decrease in
operating income.
58
<PAGE>
NET EARNINGS. Net earnings before extraordinary item decreased $8,376,000
during the year (53 weeks) ended April 3, 1997 to $18,995,000 from $27,371,000
in the prior year. Net earnings for the period were $18,995,000 compared to
$8,021,000 in the prior year, which included an extraordinary item (a loss of
$19,350,000 in connection with the early extinguishment of debt). Net earnings
before extraordinary item per common share, after deducting preferred dividends,
was $.74 compared to $1.21 for the prior year. Net earnings per common share,
after deducting preferred dividends, was $.74 compared to $.06 for the prior
year.
<TABLE>
<CAPTION>
YEARS (52 WEEKS) ENDED
----------------------------------------------------------
MARCH 28, % OF TOTAL MARCH 30, % OF TOTAL
1996 REVENUES 1995 REVENUES
----------- --------------- ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES
Admissions................................ $ 431,361 66% $ 371,145 66%
Concessions............................... 196,645 30 169,120 30
Other..................................... 27,966 4 23,079 4
----------- --- ----------- ---
Total................................... $ 655,972 100% $ 563,344 100%
----------- --- ----------- ---
----------- --- ----------- ---
COST OF OPERATIONS
Film rentals.............................. $ 215,099 33% $ 182,669 33%
Concession costs.......................... 30,417 5 24,383 4
Rent...................................... 64,813 10 60,076 11
Other..................................... 181,029 27 165,635 29
----------- --- ----------- ---
Total................................... $ 491,358 75% $ 432,763 77%
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
YEARS (52 WEEKS) ENDED MARCH 28, 1996 AND MARCH 30, 1995
REVENUES. Total revenues for the year (52 weeks) ended March 28, 1996
increased 16.4%, or $92,628,000, to $655,972,000 compared to $563,344,000 for
the year (52 weeks) ended March 30, 1995. Admissions revenues increased 16.2%,
or $60,216,000, due to a 11.1% increase in attendance, which contributed
$41,151,000 of the increase, and a 4.4% increase in average ticket prices, which
contributed $19,065,000 of the increase. The increase in attendance resulted
from the popularity of films licensed during fiscal 1996 and the net addition of
89 screens since fiscal 1995 at new and higher performing locations. Attendance
during the prior year was impacted by a dispute with a major distributor over
film licensing terms, which resulted in the Company's licensing that
distributor's films for a smaller number of its theatres than it otherwise would
have. In fiscal 1996, the Company licensed that distributor's films for what it
considers to be a more acceptable number of the Company's theatres. Concessions
revenues increased by 16.3%, or $27,525,000, due to the increase in total
attendance, which caused an increase of $18,752,000, and a 6.9% increase in
average concessions per patron, which contributed $8,773,000 of the increase.
COST OF OPERATIONS. Total cost of operations increased 13.5%, or
$58,595,000, in fiscal 1996 to $491,358,000 from $432,763,000 in fiscal 1995. As
a percentage of total revenues, cost of operations was 75% and 77% in fiscal
1996 and 1995, respectively. Film rentals expense increased 17.8%, or
$32,430,000, in fiscal 1996 due to higher attendance levels, which contributed
$29,637,000 of the increase, and an increase in the percentage of admissions
paid to film distributors, which caused an increase of $2,793,000. Concessions
costs, rent and other costs of operations increased 10.5%, or $26,165,000, from
the prior year due to increases in payroll of $6,641,000, concession costs of
$6,034,000, rent of $4,737,000 and other theatre operating expenses associated
with the increase in admissions and concessions revenues and from the higher
number of screens in operation.
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GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
25.0%, or $10,420,000, to $52,059,000 in fiscal 1996 from $41,639,000 in fiscal
1995. The increase in general and administrative expenses is primarily
attributable to payroll and other costs associated with the Company's
development of theatres in the United States and certain international markets,
additional bonus expense of $3,074,000 related to improved profitability of the
Company and severance payments of $967,000 for two former executive officers. As
a percentage of total revenues, general and administrative expenses increased to
7.9% in fiscal 1996 from 7.4% in fiscal 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
15.8%, or $5,973,000, to $43,886,000 in fiscal 1996 from $37,913,000 in fiscal
1995. This increase resulted primarily from the reduction, effective December
30, 1994, in the estimated lives of lease rights and location premiums on
certain smaller theatres to correspond to the base terms of the theatre leases,
an increase in employed theatre assets and the recognition of an impairment loss
of $1,799,000 in connection with the adoption of Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
INTEREST EXPENSE. Interest expense decreased 19.7%, or $7,080,000, to
$28,828,000 in fiscal 1996 from $35,908,000 in fiscal 1995. The decrease in
interest expense resulted from lower interest rates under the Company's Credit
Facility as compared to the rates under the Senior Notes and 12 5/8% Senior
Subordinated Notes.
INVESTMENT INCOME. Investment income decreased 29.6%, or $2,961,000, to
$7,052,000 in fiscal 1996 from $10,013,000 in fiscal 1995 due primarily to a net
gain of $1,407,000 recorded in fiscal 1995 from the sales of stock of TPI
Enterprises, Inc. and AmeriHealth, Inc. and a decrease of $1,513,000 in interest
income in fiscal 1996.
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM. Earnings before income
taxes and extraordinary item increased 86.8%, or $21,693,000, to $46,671,000 in
fiscal 1996 from $24,978,000 in fiscal 1995. The Company recorded a $19,350,000
extraordinary loss, net of income tax benefit of $13,400,000, related to
extinguishment of debt in fiscal 1996.
NET EARNINGS. For the year (52 weeks) ended March 28, 1996, the Company
recorded net earnings of $8,021,000, a $25,957,000 decrease from net earnings of
$33,978,000 for the year (52 weeks) ended March 30, 1995. Net earnings per
common share, after deducting $7,000,000 of preferred dividends, was $.06 in
fiscal 1996 compared to $1.63 in fiscal 1995. The decrease in net earnings was
impacted by an extraordinary loss of $19,350,000 incurred as a result of the
Company's repurchase of Senior Notes and 12 5/8% Senior Subordinated Notes in
fiscal 1996. Also, in fiscal 1996 the Company had a tax expense of $19,300,000,
as opposed to a tax benefit of $9,000,000 in fiscal 1995. The fiscal 1995 tax
benefit resulted from a $19,792,000 reduction in the deferred tax valuation
allowance established under Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES. Earnings per share before extraordinary item, after
deduction of preferred dividends, was $1.21 in fiscal 1996 compared to $1.63 in
fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The forward-looking statements included in this section, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
the forward-looking statements included herein as a result of a number of
factors, including but not limited to the Company's ability to enter into
various financing programs, competition from other companies, changes in
economic climate, increase in demand for real estate, demographic changes,
changes in real estate, zoning and tax laws, the performance of films licensed
by the Company and other risks and uncertainties.
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<PAGE>
The Company's revenues are collected in cash, principally through box office
admissions and theatre concessions sales. The Company has an operating "float"
which partially finances its operations and which generally permits the Company
to maintain a smaller amount of working capital capacity. This float exists
because admissions revenues are received in cash, while exhibition costs
(primarily film rentals) are ordinarily paid to distributors from 30 to 45 days
following receipt of box office admission revenues. The Company is only
occasionally required to make advance payments or non-refundable guarantees of
film rentals. Film distributors generally release films which they anticipate
will be the most successful during the summer and holiday seasons. Consequently,
the Company typically generates higher revenues during such periods. Cash flows
from operating activities, as reflected in the Consolidated Statements of Cash
Flows, was $134,074,000, $96,847,000 and $44,366,000 in fiscal years 1997, 1996
and 1995, respectively.
During fiscal 1997, the Company had capital expenditures of $253,380,000,
primarily for the development of new theatres and the addition of screens at
existing locations. The Company has continued its expansion plan by opening 14
leased theatres with 244 screens, two owned theatres with 46 screens and one
theatre with 24 screens leased pursuant to a ground lease. Included in these
openings is the Company's first theatre in Japan, the Canal City 13 in Fukuoka,
which opened in April 1996, and the Company's first theatre in Portugal, the
Arrabida 20 in Porto, which opened in late December 1996. In addition, the
Company closed or sold 14 leased theatres with 72 screens and one owned theatre
with four screens, resulting in a circuit total of 1,957 screens in 228 theatres
as of April 3, 1997.
The Company has plans to open approximately 700 screens during fiscal 1998.
If these planned screens are opened as scheduled, the Company estimates that
total capital expenditures for fiscal 1998 will aggregate approximately $425
million. Included in these amounts are assets which the Company may place into
sale/leaseback or other comparable financing programs which will have the effect
of reducing the Company's net cash outlays. As of April 3, 1997, the Company had
under construction 15 new leased theatre locations totaling 362 screens, four
new owned theatres with 104 screens, two theatres with 48 screens leased
pursuant to a ground lease and additions to four existing theatres for 44 new
screens. All of these theatres and screens will be located in the United States.
On December 28, 1995, the Company completed the redemption of substantially
all of its Senior Notes and 12 5/8% Senior Subordinated Notes. The Company
redeemed $99,383,000 of the Senior Notes at a total price of $1,117.90 per
$1,000 principal amount and $95,096,000 of the 12 5/8% Senior Subordinated Notes
at a total price of $1,144.95 per $1,000 principal amount. The Company utilized
cash and investments along with borrowings of $130,000,000 on a credit facility
to redeem the Senior Notes and the 12 5/8% Senior Subordinated Notes.
As a part of the refinancing plan, the Company entered into the Credit
Facility, which was subsequently amended and restated as of April 10, 1997. The
Credit Facility permits borrowings at interest rates based on either the bank's
base rate or LIBOR and requires an annual commitment fee based on margin ratios
that could result in a rate of .1875% to .375% on the unused portion of the
commitment. The Credit Facility matures in 2004. The commitment thereunder will
reduce by $25 million on each of December 31, 2002, March 31, 2003, June 30,
2003 and September 30, 2003 and by $50 million on December 31, 2003. As of April
3, 1997, the Company had outstanding borrowings of $110,000,000 under the Credit
Facility at an average interest rate of 6.4% per annum.
Covenants of the Credit Facility, as amended and restated, impose
limitations on the incurrence of additional indebtedness, creation of liens,
change of control, transactions with affiliates, mergers, investments,
guaranties, asset sales, business activities and pledges. The Company is
required to maintain (i) a maximum net indebtedness to consolidated EBITDA
ratio, as defined in the Credit Facility (generally, the ratio of the principal
amount of outstanding indebtedness (less cash and equivalents) to earnings
before interest, taxes, depreciation, amortization and other noncash charges),
of 5.25 to 1 during the first four years of the Credit Facility, a ratio of 4.75
to 1 during the fifth year, a ratio of 4.25 to 1 in
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the sixth year and a ratio of 4.0 to 1 thereafter, and a (ii) minimum cash flow
coverage ratio, as defined in the Credit Facility (generally, the ratio of
consolidated EBITDA for the most recent four quarters to the sum of (A)
consolidated interest expense for such period, (B) amounts paid as dividends,
for the optional repurchase or redemption of subordinated debt or capital stock,
or with respect to the principal amount of capital lease obligations during such
period, plus (C) the current portion of debt with an original maturity exceeding
one year), of 1.40 to 1. If the Company prepays, defeases or repurchases more
than $10 million of the Notes (as defined below) or any other subordinated debt
incurred after April 10, 1997, it is required to maintain a maximum net senior
indebtedness to EBITDA ratio, as defined in the Credit Facility, of 4.5 to 1
during the first four years of the Credit Facility and 4.0 to 1 thereafter. As
of April 3, 1997, the Company was in compliance with all financial covenants
relating to the Credit Facility.
Prior to its April 10, 1997 amendment and restatement, the Credit Facility
contained a covenant that generally limited the Company's capital expenditures.
This covenant has been eliminated.
On March 19, 1997, the Company sold $200 million aggregate principal amount
of its Notes in the Note Offering. Net proceeds from the issuance of the Notes
(approximately $193.8 million) were used to reduce borrowings under the Credit
Facility. Amounts repaid under the Credit Facility will again be available for
borrowing thereunder, and the Company intends to utilize this increased
availability to continue with its current expansion program.
The Notes bear interest at the rate of 9 1/2% per annum, payable in March
and September. The Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after March 15, 2002 at 104.75% of the principal
amount thereof, declining ratably to 100% of the principal amount thereof on or
after March 15, 2006, plus in each case interest accrued to the redemption date.
Upon a change of control (as defined in the Note Indenture), each holder of the
Notes will have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase. The Notes are subordinated to all
existing and future senior indebtedness (as defined in the Note Indenture) of
the Company.
The Company has agreed to use its best efforts to (i) file and cause to
become effective by August 16, 1997, a registration statement relating to a
registered offer to exchange the Notes (the "Exchange Offer") for notes of AMCE
with terms identical in all material respects to the Notes and (ii) cause the
Exchange Offer to be consummated by September 15, 1997. If the Exchange Offer
registration statement is not declared effective by August 16, 1997, the Company
has agreed that in lieu thereof it will use its best efforts to cause to become
effective by September 15, 1997 a shelf registration statement with respect to
the Notes. In the event that either (a) the Exchange Offer registration
statement is not filed on or prior to June 17, 1997, (b) the Exchange Offer
registration statement is not declared effective on or prior to August 16, 1997
or (c) the Exchange Offer is not consummated or a shelf registration statement,
with respect to the Notes, is not declared effective on or prior to September
15, 1997, the interest rate borne by the Notes will increase by 0.50% per annum
following June 17, 1997 in the case of clause (a) above, following August 16,
1997 in the case of clause (b) above and following September 15, 1997 in the
case of clause (c) above. The aggregate amount of such increase will in no event
exceed 1.00% per annum. Upon (x) the filing of the Exchange Offer registration
statement after June 17, 1997, (y) the effectiveness of the Exchange Offer
registration statement after August 16, 1997 or (z) the consummation of the
Exchange Offer or the effectiveness of a shelf registration statement, as the
case may be, after September 15, 1997, the interest rate borne by the Notes from
the date of filing, effectiveness or consummation, as the case may be, will be
reduced to 9 1/2%. The Exchange Offer registration statement was filed on June
13, 1997.
The Note Indenture contains certain covenants that, among other things,
restrict the ability of the Company and its subsidiaries to: incur additional
indebtedness; pay dividends or make distributions in respect of their capital
stock; purchase or redeem capital stock; enter into transactions with
stockholders or certain affiliates; or consolidate, merge or sell all or
substantially all of the Company's assets, other
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<PAGE>
than in certain transactions between the Company and one or more of its
wholly-owned subsidiaries and other than the Merger. All of these limitations
are subject to a number of important qualifications. The Note Indenture does not
impose any limitation on the incurrence by the Company and its subsidiaries of
liabilities that are not considered "Indebtedness" under the Note Indenture,
such as those that would be incurred under certain sale/leaseback transactions;
nor does the Note Indenture impose any limitation on the amount of liabilities
incurred by subsidiaries, if any, that might be designated as Unrestricted
Subsidiaries (as defined therein). Furthermore, there are no restrictions on the
ability of the Company and its subsidiaries to make advances to, or invest in,
other entities (including unaffiliated entities) and no restrictions on the
ability of the Company's subsidiaries to enter into agreements restricting their
ability to pay dividends or otherwise transfer funds to the Company. If the
Notes attain "investment grade status" (as defined in the Note Indenture), the
covenants in the Note Indenture limiting the Company's ability to incur
indebtedness, pay dividends, acquire stock or engage in transactions with
affiliates will cease to apply.
The Company believes that cash generated from operations, existing cash and
equivalents, amounts received from sale/leaseback or other comparable financing
programs which the Company is currently pursuing and the unused commitment
amount under its Credit Facility will be sufficient to fund operations and
planned capital expenditures through the end of fiscal 1998.
During the year (53 weeks) ended April 3, 1997, various holders of the
Company's $1.75 Cumulative Convertible Preferred Stock (the "Convertible
Preferred Stock") converted 696,400 shares into 1,200,589 shares of Common Stock
at a conversion rate of 1.724 shares of Common Stock for each share of
Convertible Preferred Stock. Convertible Preferred Stock dividend payments
decreased 14.4%, or $1,007,000, to $5,993,000 for the year (53 weeks) ended
April 3, 1997 from $7,000,000 in the prior year as a result of the conversions.
Future conversions will continue to reduce the amount of dividends paid by the
Company and increase the number of shares of Common Stock outstanding.
The Convertible Preferred Stock is redeemable in whole or in part, at the
option of the Company, at a current redemption price of $26 per share, declining
by $.25 per share on March 15 of each year until March 15, 2001, when such price
will become fixed at $25. Shares called for redemption may be converted by the
holders thereof prior to the redemption date.
On January 10, 1997, the Company purchased the 20% minority interest in the
common stock of AMC Philadelphia, Inc., an 80% owned subsidiary, for $7,400,000
in cash. The Company utilized borrowings on its Credit Facility to finance the
purchase. Management does not believe that the acquisition will have a
significant effect on the Company's results of operations.
OTHER
The Board of Directors has approved the Merger Agreement providing for the
Merger of the Company and DI, with the Company remaining as the surviving
entity. The Merger has been sought by members of the Durwood family so that they
may hold their interests in the Company directly instead of indirectly through
DI and AAE. In the Merger, stockholders of DI would exchange their shares of DI
stock for shares of the Company's stock. Although the outstanding shares of the
Company's Common Stock will increase and the outstanding shares of its Class B
Stock will decrease if the Merger is effected, no aggregate increase in total
outstanding shares will occur because the shares of the Company owned by DI will
be canceled and the shares of the Company held by other stockholders would not
be exchanged in the Merger. A condition to the Merger is that the Merger
Agreement receive approval of the holders of a majority of the shares of Common
Stock other than DI, the Durwood Family Stockholders, their spouses and children
and officers and directors of the Company.
DI is primarily a holding company with no significant operations or assets
other than its equity interest in the Company. Management expects that the
Merger will be accounted for as a corporate reorganization and that,
accordingly, the recorded balances for consolidated assets, liabilities, total
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stockholders equity and results of operations of the Company would not be
affected. If the Merger occurs, the Company will be responsible for paying 50%
of its costs in connection with the Merger; the aggregate merger costs for both
the Company and DI are estimated to be approximately $2 million. Management does
not believe that the transaction will have a significant effect on the Company's
financial condition, liquidity or capital resources.
The Company is in the process of modifying its computer applications to
ensure their continuing functionality for the "Year 2000" and beyond. At the
present time the Company estimates that expenses related to this project will
total approximately $1.5 million to $2.0 million. These total estimated expenses
are expected to be incurred during fiscal years 1998 and 1999.
Congress passed legislation to increase the federal minimum hourly wage paid
to hourly wage employees over a two-year period. This legislation will increase
the aggregate average hourly wage paid by the Company. The Company intends to
relieve the cost pressure from the minimum wage increase by pursuing better
labor and operating efficiencies as well as some price adjustments for theatres
in certain markets. Such legislation is not expected to have a material adverse
effect on the Company's results of operations, liquidity or financial condition.
IMPACT OF INFLATION
Historically, the principal impact of inflation and changing prices upon the
Company has been to increase the costs of the construction of new theatres, the
purchase of theatre equipment and the utility and labor costs incurred in
connection with continuing theatre operations. Film rentals expense, the largest
cost of operations of the Company, is customarily paid as a percentage of
admissions revenues and hence, while the film rentals expense may increase on an
absolute basis, the percentage of admissions revenues represented by such
expense is not directly affected by inflation. Except as set forth above,
inflation and changing prices have not had a significant impact on the Company's
total revenues and results of operations.
RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS
During fiscal 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. The Statement allows companies to measure compensation cost in
connection with employee stock compensation plans using a fair value based
method or to continue to use an intrinsic value based method to account for
stock options and awards. The Company has chosen to continue using the intrinsic
value based method while adopting the disclosure-only provisions of the
pronouncement.
During fiscal 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), EARNINGS PER
SHARE. SFAS 128 eliminates the presentation of primary and fully diluted
earnings per share ("EPS") and requires presentation of basic and diluted EPS.
The principal difference between primary and basic EPS is that common stock
equivalents are not included with the weighted average number of shares
outstanding used in the computation of basic EPS. Diluted EPS is computed
similarly to fully diluted EPS. SFAS 128 is effective for periods ending after
December 15, 1997, including interim periods, and requires restatement of all
prior-period EPS data. Early adoption is not permitted. Management has not yet
determined the impact that this statement will have on the Company.
BUSINESS OF THE COMPANY
GENERAL
The Company is one of the leading theatrical exhibition companies in North
America. In the fiscal year ended April 3, 1997, the Company's revenues were
$749,597,000. As of April 3, 1997, the Company operated 228 theatres with an
aggregate of 1,957 screens located in 23 states, the District of Columbia,
Portugal and Japan. Approximately 61% of the screens operated by the Company are
located in Florida,
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California, Texas, Missouri and Michigan and approximately 73% of the Company's
domestic screens are located in areas among the 20 largest "Areas of Dominant
Influence" (television market areas as defined by Arbitron Company).
The Company is an industry leader in the development and operation of
"megaplex" and "multiplex" theatres, primarily in large metropolitan markets.
Megaplex theatres are theatres having at least 14 screens with predominantly
stadium-style seating (seating with an elevation between rows to provide
unobstructed viewing). Multiplex theatres are theatres generally without
stadium-style seating and having less than 14 screens. The Company believes that
its strategy of developing megaplex theatres has prompted the current theatrical
exhibition industry trend in the United States and Canada toward the development
of larger theatre complexes. This trend has accelerated the obsolescence of many
existing movie theatres by setting new standards for moviegoers, who have
demonstrated their preference for the more attractive surroundings, wider
variety of films, better customer services and more comfortable seating typical
of megaplexes.
In addition to providing a superior entertainment experience, megaplex
theatres realize economies of scale by serving more patrons from common support
facilities, thereby spreading costs over a higher revenue base. The Company's
megaplex theatres have consistently ranked among its top grossing facilities on
a per screen basis. During the fiscal year ended April 3, 1997, attendance per
screen at the Company's megaplex theatres was 88,200 compared to 63,800 for the
Company's multiplex theatres. (During 1995, the last period for which data is
available, the theatrical exhibition industry in the United States averaged
approximately 47,000 patrons per screen.) In addition, during the fiscal year
ended April 3, 1997, average revenue per patron at the Company's megaplex
theatres was $6.54 compared to $5.95 for its multiplex theatres, and operating
cash flow before rent of the Company's megaplex theatres was 37% of the total
revenue of such theatres, whereas operating cash flow before rent of the
Company's multiplex theatres was 33% of total revenues of such theatres. As of
April 3, 1997, 591 screens, or 30.2% of the Company's screens, were in megaplex
and multiplex theatres with 14 or more screens and of these, 366 screens, or
18.7% of the Company's screens, were in megaplex theatres. The average number of
screens per theatre operated by the Company is 8.6, compared to an average of
5.9 for the ten largest North American theatrical exhibition companies (based on
number of screens) and 5.2 for all North American theatrical exhibition
companies.
The Company continually upgrades its theatre circuit by opening new theatres
(primarily megaplex theatres), adding new screens to existing theatres and
selectively closing unprofitable theatres. Since April 1995, the Company has
opened 24 new theatres with 422 screens, representing 21.6% of its current
number of screens, and has added 42 screens to existing theatres. Of these 422
screens, 366 screens were in 18 megaplex locations. Among these new theatres are
the Company's first theatre in Japan, the Canal City 13, in Fukuoka, and its
first theatre in Portugal, the Arrabida 20, in Porto. As of April 3, 1997, the
Company had 21 new theatres under construction having an aggregate of 514
screens and was adding 44 screens to existing theatres. All of these theatres
and screens will be located in the United States.
Revenues for the Company are generated primarily from box office admissions
and theatre concessions sales, which accounted for 66% and 30%, respectively, of
fiscal 1997 revenues. The balance of the Company's revenues are generated
primarily by the Company's on-screen advertising business, video games located
in theatre lobbies and the rental of theatre auditoriums.
The Company's predecessor was founded in Kansas City, Missouri in 1920 by
the father of Mr. Stanley H. Durwood, the current Chairman of the Board and
Chief Executive Officer of the Company. DI, substantially all of whose stock is
beneficially owned by Mr. Stanley H. Durwood and the Durwood Children, owned
100% of the outstanding shares of AMCE Class B Stock and 40% of the outstanding
shares of AMCE Common Stock as of April 3, 1997, representing in the aggregate
approximately 97% of the voting power of outstanding securities in matters other
than the election of directors. Holders of AMCE Class B Stock are entitled to
ten votes per share and as a class are presently entitled to elect 75%
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of the AMCE Board. See "--Security Ownership of Beneficial Owners" and
"--Management of the Company."
BUSINESS STRATEGY
The Company intends to expand its theatre circuit primarily by developing
new theatres in major markets in the United States and select international
markets. New theatres will primarily be megaplex theatres which will also be
equipped with SONY Dynamic Digital Sound-TM- (SDDS-TM-) and AMC LoveSeat-TM-
style seating (plush, high-backed seats with retractable armrests). Other
amenities may include auditoriums with TORUS-TM- Compound Curved Screens and
High Impact Theatre Systems-TM- (HITS-TM-), which enhance picture and sound
quality, respectively.
The Company's strategy of establishing megaplex theatres enhances attendance
and concessions sales by enabling it to exhibit concurrently a variety of motion
pictures attractive to different segments of the movie-going public. Megaplexes
also allow the Company to match a particular motion picture's attendance
patterns to the appropriate auditorium size (ranging from approximate 90 to 450
seats), thereby extending the run of a motion picture and providing superior
theatre economies. The Company believes that megaplex theatres enhance its
ability to license commercially popular motion pictures and to access
economically prime real estate sites due to its desirability as an anchor
tenant.
The Company believes that the megaplex format will create a new replacement
cycle for the industry. The new format raises moviegoers' expectations by
providing superior viewing lines, comfort, picture and sound quality as well as
increased choices of films and start times. The Company believes that consumers
will increasingly choose theatres based on the quality of the movie-going
experience rather than the location of the theatre. As a result, the Company
believes that older, smaller theatres will become obsolete as the megaplex
concept matures.
The Company believes that significant market opportunities exist for
development of modern megaplex and multiplex theatres in select international
markets. The theatrical exhibition business has become increasingly global and
box office receipts from international markets approximate those of the U.S.
market and are rising at a faster rate. In addition, the production and
distribution of feature films and demand for American motion pictures is
increasing in many countries. The Company believes that its experience in
developing and operating megaplex and multiplex theatres provides it with a
significant advantage in developing megaplex and multiplex facilities in
international markets and the Company intends to utilize this experience, as
well as its existing relationships with domestic motion picture studios, to
enter certain international markets. The Company's strategy in these markets is
to operate leased theatres and consider partnerships or joint ventures, where
appropriate, to share risk and leverage resources. Presently the Company's
activities in international markets are directed toward Japan, Portugal, Spain,
Hong Kong and Canada, which markets the Company believes are under screened.
The Company continually monitors its theatres to determine their performance
and has improved the profitability of certain of its older theatres by
converting them to "dollar houses," which display second-run movies and charge
lower admission prices (ranging from $1.00 to $1.75). It operated 12 such
theatres with 68 screens as of April 3, 1997 (3.5% of the Company's total
screens). Other strategies for under performing theatres include selling them to
discount operators and closing them. Divestiture strategies for theatres with
longer leases include selling them to other exhibitors, closing them or
converting such theatres to other uses and subleasing them.
THEATRE CIRCUIT
The following table sets forth information concerning additions and
dispositions of theatres and screens during, and the number of theatres and
screens operated as of the end of, the last five fiscal years. The Company adds
and disposes of theatres based on industry conditions and its business strategy.
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CHANGES IN THEATRES OPERATED
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF
FISCAL YEAR ENDED THEATRES SCREENS THEATRES SCREENS THEATRES SCREENS
- ------------------------- --------------- --------------- --------------- --------------- --------------- -------------
ADDITIONS DISPOSITIONS TOTAL THEATRES OPERATED
-------------------------------- -------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
April 1, 1993............ 6 72 16 72 243 1,617
March 31, 1994........... 2 15 9 29 236 1,603
March 30, 1995........... 3 53 7 26 232 1,630
March 28, 1996........... 7 150 13 61 226 1,719
April 3, 1997............ 17 314 15 76 228 1,957
-- --
--- ---
Total.................. 35 604 60 264
-- --
-- --
--- ---
--- ---
</TABLE>
The following table provides greater detail with respect to the Company's
theatre circuit as of April 3, 1997.
<TABLE>
<CAPTION>
SCREENS PER
THEATRE
TOTAL TOTAL ------------
DOMESTIC SCREENS THEATRES 1-13 14+
- ---------------------------------------------------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Florida................................................... 390 43 35 8
California................................................ 333 35 28 7
Texas..................................................... 221 24 21 3
Missouri.................................................. 127 13 10 3
Michigan.................................................. 115 19 19 --
Arizona................................................... 114 13 11 2
Pennsylvania.............................................. 105 15 15 --
Georgia................................................... 86 7 3 4
Colorado.................................................. 65 9 9 --
Ohio...................................................... 62 5 3 2
Virginia.................................................. 62 8 7 1
New Jersey................................................ 50 8 8 --
Maryland.................................................. 48 6 6 --
Oklahoma.................................................. 22 3 3 --
North Carolina............................................ 22 1 -- 1
Louisiana................................................. 20 3 3 --
Washington................................................ 20 3 3 --
New York.................................................. 16 2 2 --
Massachusetts............................................. 10 2 2 --
District of Columbia...................................... 9 1 1 --
Nebraska.................................................. 8 2 2 --
Illinois.................................................. 8 1 1 --
Kansas.................................................... 6 1 1 --
Delaware.................................................. 5 2 2 --
--
----- --- ---
Total Domestic.......................................... 1,924 226 195 31
--
--
----- --- ---
----- --- ---
INTERNATIONAL
- ----------------------------------------------------------
Japan..................................................... 13 1 1 --
Portugal.................................................. 20 1 -- 1
--
----- --- ---
Total International..................................... 33 2 1 1
--
--
----- --- ---
----- --- ---
Total Circuit............................................. 1,957 228 196 32
--
--
----- --- ---
----- --- ---
</TABLE>
67
<PAGE>
As of April 3, 1997, the Company operated 17 megaplex theatres having an
aggregate of 352 screens, representing 18.0% of its screens.
Of the Company's 228 theatres and 1,957 screens operated as of April 3,
1997, AMC was the owner or lessee of 223 theatres with 1,909 screens, and AMC
Entertainment International, Inc., an AMCE subsidiary, leased one theatre with
13 screens and its subsidiary, Actividades Multi-Cinemas E Espectaculos, LDA,
leased one theatre with 20 screens. AMC also operated three theatres with 15
screens owned by a third party.
Of the 228 theatres operated by the Company as of April 3, 1997, 14 theatres
with 157 screens were owned, 14 theatres with 135 screens were leased pursuant
to ground leases, 197 theatres with 1,650 screens were leased pursuant to
building leases and three theatres with 15 screens were managed. The Company's
leases generally have terms from 15 to 25 years, with options to extend the
lease for up to 20 additional years. The leases typically require escalating
minimum annual rent payments and additional rent payments based on a percentage
of the leased theatre's revenue above a base amount and require the Company to
pay for property taxes, maintenance, insurance and certain other
property-related expenses.
In some cases, the Company's rights as tenant are subject and subordinate to
the mortgage loans of lenders to its lessors, so that if a mortgage were to be
foreclosed, the Company could lose its lease. Historically, this has never
occurred.
The majority of the concessions, projection, seating and other equipment
required for each of the Company's theatres is owned.
The Company leases its corporate headquarters, located in Kansas City,
Missouri. Regional theatre and film licensing offices are leased in Los Angeles,
California; Clearwater, Florida; and Voorhees, New Jersey.
THEATRE DEVELOPMENT
New theatre sites are typically selected on the basis of retail
concentration, access to surface transportation and demographic trends
identified by reference to census figures and other statistical sources. Each
division of the Company has a real estate function to identify potential sites,
develop the economic profile of the sites and present the concepts to senior
management. The Company obtains some sites through several large real estate
developers of regional and strip malls with which it has developed proven
working relationships.
When approved by senior management, the real estate representatives
negotiate lease or purchase terms and, once finalized, then turn the project
over to the construction department for construction management. The Company
typically targets for development areas such as specialty shopping or
entertainment centers and retail space in or near suburban malls.
FILM LICENSING
The Company predominantly licenses "first-run" motion pictures from
distributors on a film-by-film and theatre-by-theatre basis. The Company obtains
these licenses either by negotiations directly with, or by submitting bids to,
distributors. Negotiations with distributors are based on several factors,
including theatre location, competition, season of the year and motion picture
content. Rental fees are paid by the Company under a negotiated license and are
made on either a "firm terms" basis, where final terms are negotiated at the
time of licensing, or are adjusted subsequent to the exhibition of a motion
picture in a process known as "settlement." When motion pictures are licensed
through a bidding process, the distributor decides whether to accept bids on a
previewed basis or a non-previewed ("blind-bid") basis, subject to certain state
law requirements. In most cases, the Company licenses its motion pictures on a
previewed basis. When a film is bid on a previewed basis, exhibitors are
permitted to review the film
68
<PAGE>
before bidding, whereas they are not permitted to do so when films are licensed
on a non-previewed or "blind-bid" basis.
Licenses entered into through both negotiated and bid processes typically
state that rental fees shall be based on the higher of a gross receipts formula
or a theatre admissions revenue sharing formula. Under a gross receipts formula,
the distributor receives a specified percentage of box office receipts, with the
percentages declining over the term of the run. First-run motion picture rental
fees are generally the greater of (i) 70% of box office admissions, gradually
declining to as low as 30% over a period of four to seven weeks, and (ii) a
specified percentage (I.E., 90%) of the excess of box office receipts over a
negotiated allowance for theatre expenses (commonly known as a "90/10" clause).
Second-run motion picture rental fees typically begin at 35% of box office
admissions and often decline to 30% after the first week.
The Company may pay non-refundable guarantees of film rentals or make
advance payments of film rentals, or both, in order to obtain a license in a
negotiated or bid process, subject, in some cases, to a per capita minimum
license fee. Because of the settlement process, negotiated licenses typically
are more favorable to theatre operators with respect to the percentage of
admissions revenue ultimately paid to license a motion picture. In the past few
years, bidding has been used less frequently by the industry. Presently, the
Company licenses substantially all of its films on a negotiated basis.
The Company licenses films through film buyers who enable the Company to
capitalize on local trends and to take into account actions of local competitors
in the Company's negotiation and bidding strategies. Criteria considered in
licensing each motion picture include cast, director, plot, performance of
similar motion pictures, estimated motion picture rental costs and expected
rating by the Motion Pictures Association of America (the "MPAA"). Successful
licensing depends greatly upon knowledge of the tastes of the residents in
markets served by each theatre and insight into the trends in those tastes, as
well as the availability of commercially popular motion pictures. The Company at
no time licenses any one motion picture for all of its theatres.
The Company's business is dependent upon the availability of marketable
motion pictures. There are several distributors which provide a substantial
portion of quality first-run motion pictures to the exhibition industry. These
include Buena Vista Pictures (Disney), Warner Bros. Distribution, SONY Pictures
Releasing (Columbia Pictures and Tri-Star Pictures), Twentieth Century Fox,
Universal Film Exchanges, Inc. and Paramount Pictures. There are numerous other
distributors and no single distributor dominates the market. From year to year,
the Company's revenues attributable to individual distributors may vary
significantly depending upon the commercial success of each distributor's motion
pictures in any given year. In fiscal 1997, no single distributor accounted for
more than 12% of the motion pictures licensed by the Company or for more than
21% of the Company's box office admissions. Poor relationships with
distributors, poor performance of motion pictures or disruption in the
production of motion pictures by the major studios and/or independent producers
may have an adverse effect upon the business of the Company. Some of the major
distributors have announced their intention to reduce production of films.
During the period from January 1, 1990 to December 31, 1995, the annual
number of first-run motion pictures released by distributors in the United
States ranged from a low of 382 in 1995 to a high of 440 in 1993, according to
the MPAA. If a motion picture still has substantial potential following its
first-run, the Company may license it for a "sub-run." Although average daily
sub-run attendance is often less than average daily first-run attendance,
sub-run film rentals are also generally lower than first-run film rentals.
Sub-runs enable the Company to exhibit a variety of motion pictures during
periods in which there are few new film releases.
69
<PAGE>
MARKETING
The Company relies primarily upon advertisements and movie schedules
published in newspapers to inform its patrons of motion picture titles and show
times. Radio, television and full-page newspaper advertisements are used on a
regular basis to promote new releases and special events. These expenses are
generally paid for by the distributors; however, the Company occasionally shares
the expense of such advertisements. The Company pays for newspaper "stack"
advertisements which display information on motion pictures at the Company's
theatres within a geographic area. The Company also exhibits "Now Playing" and
"Coming Soon" spots to promote motion pictures currently playing on the
Company's screens or motion pictures not yet released.
THEATRE MANAGEMENT AND OPERATIONS
The Company uses a decentralized structure to operate its business on a
day-to-day basis. Each location is viewed as a discrete profit center and a
portion of management's compensation at each theatre is linked to the operating
results of each unit. All theatre level personnel complete formal training
programs to maximize both customer service and the efficiency of the Company's
operations. Theatre management additionally attends a two-week training academy
focusing on operations administration and marketing during their first 12 to 24
months with the Company.
A typical ten-screen movie theatre has approximately 60 employees and five
managers. A 24-screen megaplex may have as many as 150 employees and 12
managers. The Company is committed to developing the strongest possible
management teams and seeks college graduates for career management positions.
Three division offices, each headed by a Senior Vice President of AMC,
supervise theatre operations and personnel within their respective regions. The
division Senior Vice Presidents are also responsible within their markets for
real estate development, marketing, facilities (design and maintenance) and
profit center auditing. The division offices are located in Los Angeles,
California; Clearwater, Florida; and Voorhees, New Jersey (Philadelphia).
Policy development, strategic planning, finance and accounting for the
Company are managed at the Company's corporate office located in Kansas City,
Missouri. Additionally, the corporate office provides support to both the
division offices and individual theatres regarding management information
systems, administration, employee benefits and operations services. All film
licensing activity occurs in Woodland Hills, California, utilizing a structure
that facilitates interaction between theatre managers, division managers and
film buyers.
CONCESSIONS
Concessions sales are the second largest source of revenue for the Company
after box office admissions. Concessions items include popcorn, soft drinks,
candy and other products. The Company's strategy emphasizes prominent and
appealing concessions counters designed for rapid service and efficiency.
The Company's primary concessions products are various sizes of popcorn,
soft drinks, candy and hot dogs, all of which the Company sells at each of its
theatres. However, different varieties of candy and soft drinks are offered at
theatres based on preferences in that particular geographic region. The Company
has also implemented "combo-meals" for children which offer a pre-selected
assortment of concessions products.
Newer megaplex theatres are designed to have more concessions service
capacity per seat than multiplex theatres and typically have three concessions
stands, with each stand having multiple service stations to make it easier to
serve larger numbers of customers. In addition, the primary concessions stand in
such theatres generally features the "pass-through" concept, which provides a
staging area behind the concessions equipment to prepare concessions products.
This permits the concessionist serving patrons to simply sell concessions items
instead of also preparing them, thus providing more rapid service to customers.
Strategic placement of large concessions stands within theatres heightens their
visibility, aids in reducing the length of concessions lines and improves
traffic flow around the concessions stands.
70
<PAGE>
The Company negotiates prices for its concessions supplies directly with
concessions vendors on a national or regional basis to obtain high volume
discounts or bulk rates.
MANAGEMENT INFORMATION SYSTEMS
The Company has a point of sale ("POS") management information system to
further enhance its ability to maximize revenues, control costs and efficiently
manage the Company's theatre circuit. The POS information system provides
corporate management with a detailed daily admissions and concessions revenue
report by the start of business the following morning. This information allows
management to make adjustments to movie schedules, prolong runs or increase the
number of screens on which successful movies are being played and substitute
films when gross receipts cease to meet expected goals. Seating and box office
information is available to box office personnel, making it possible for theatre
management to avoid overselling a particular film and providing faster and more
accurate response to customer inquiries regarding showings and available
seating. The POS information system also tracks concessions sales and provides
weekly in-theatre inventory reports, leading to better inventory management and
control. The POS system also processes the MovieWatcher-Registered Trademark-
program whereby moviegoers earn points for each movie attended and earn discount
concession coupons and passes for movies. This frequent moviegoer program is the
only program of its type in the industry, and the Company believes it enhances
customer loyalty.
THEATRICAL EXHIBITION INDUSTRY OVERVIEW
Motion picture theatres are the primary initial distribution channel for new
motion picture releases and the Company believes that the theatrical success of
a motion picture is often the most important factor in establishing its value in
the cable television, videocassette and other ancillary markets. The Company
further believes that the emergence of new motion picture distribution channels
has not adversely affected attendance at theatres and that these distribution
channels do not provide an experience comparable to that of viewing a movie in a
theatre. The Company believes that the public will continue to recognize the
advantages of viewing a movie on a large screen with superior audio and visual
quality, while enjoying a variety of concessions and sharing the experience with
a larger audience.
Annual domestic theatre attendance has averaged approximately one billion
persons since the early 1960s. In 1996, estimated domestic attendance was 1.35
billion. Fluctuations and variances in year-to-year attendance are primarily
related to the overall popularity and supply of motion pictures.
The theatrical exhibition industry in North America is comprised of over 400
exhibitors, approximately 250 of which operate four or more screens. Based on
the listing of exhibitors in the NATO 1996-97 Encyclopedia of Exhibitions, as of
May 1, 1996, the ten largest exhibitors (in terms of number of screens) operated
approximately 56% of the total screens, with no one exhibitor operating more
than 10% of the total screens.
71
<PAGE>
The following table represents the results of a survey by NATO for 1990
through 1995, outlining the historical trends in U.S. theatre attendance,
average ticket prices and box office sales, and information obtained from THE
HOLLYWOOD REPORTER on box office revenues for 1996.
<TABLE>
<CAPTION>
U.S. BOX OFFICE
ATTENDANCE AVERAGE TICKET SALES
YEAR (IN MILLIONS) PRICE (IN MILLIONS)
- -------------------------------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
1990........................................ 1,189 $ 4.22 $ 5,021
1991........................................ 1,141 $ 4.21 $ 4,803
1992........................................ 1,173 $ 4.15 $ 4,871
1993........................................ 1,244 $ 4.14 $ 5,154
1994........................................ 1,292 $ 4.18 $ 5,396
1995........................................ 1,263 $ 4.35 $ 5,493
1996........................................ -- -- $ 5,910
</TABLE>
COMPETITION
The Company competes against both local and national exhibitors, some of
which may have substantially greater financial resources than the Company. There
are over 400 companies competing in the domestic theatrical exhibition industry.
Industry participants vary substantially in size, from small independent
operators to large international chains. As of May 1, 1996, the ten largest
motion picture exhibition companies operated approximately 56% of the total
number of screens, based on the listing of exhibitors in the NATO 1996-1997
Encyclopedia of Exhibitions.
The Company's theatres are subject to varying degrees of competition in the
geographic areas in which they operate. Competition is often intense with
respect to licensing motion pictures, attracting patrons and finding new theatre
sites. Theatres operated by national and regional circuits and by smaller
independent exhibitors compete aggressively with the Company's theatres. The
Company believes that the principal competitive factors with respect to film
licensing include licensing terms, seating capacity and location and condition
of an exhibitor's theatres. The competition for patrons is dependent upon
factors such as the availability of popular motion pictures, the location and
number of theatres and screens in a market, the comfort and quality of the
theatres and pricing.
As with other exhibitors, the Company's smaller multiplex theatres are
subject to being rendered obsolete through the introduction of new, competing
megaplex theatres.
The theatrical exhibition industry also faces competition from other
distribution channels for filmed entertainment, such as cable television, pay
per view and home video systems, as well as from all other forms of
entertainment.
REGULATORY ENVIRONMENT
The distribution of motion pictures is in large part regulated by federal
and state antitrust laws and has been the subject of numerous antitrust cases.
The consent decrees resulting from one of those cases, to which the Company was
not a party, have a material impact on the industry and the Company. Those
consent decrees bind certain major motion picture distributors and require the
motion pictures of such distributors to be offered and licensed to exhibitors,
including the Company, on a film-by-film and theatre-by-theatre basis.
Consequently, the Company cannot assure itself of a supply of motion pictures by
entering into long-term arrangements with major distributors, but must compete
for its licenses on a film-by-film and theatre-by-theatre basis.
Bids for new motion picture releases are made, at the discretion of the
distributor (subject to state law requirements), either on a previewed basis or
blind-bid basis. Certain states have enacted laws regulating the practice of
blind-bidding. Management believes that it may be able to make better
72
<PAGE>
business decisions with respect to film licensing if it is able to preview
motion pictures prior to bidding for them, and accordingly believes that it may
be less able to capitalize on its expertise in those states which do not
regulate blind-bidding.
The Company is subject to the Americans with Disabilities Act of 1990
("ADA") and believes that it is in substantial compliance with all current
applicable regulations relating to accomodations for the disabled. The Company
does not believe that compliance with ADA will have a material adverse effect on
the Company.
As the Company expands internationally, it becomes subject to regulation by
foreign governments. There are significant differences between the theatrical
exhibition industry regulatory environment in the United States and in
international markets. Regulatory barriers affecting such matters as the size of
theatres, the issuance of licenses and the ownership of land may restrict market
entry. Vertical integration of production and exhibition companies in
international markets may also have an adverse effect on the Company's ability
to license motion pictures for international exhibition. The Company's initial
attendance at its theatre in Japan was negatively impacted by film distributors
in Japan who restricted the Company's ability to obtain film product until
approximately two weeks after its competitors had received it. This delay in
releasing films to the Company generally has been eliminated. The Company's
international operations also face the additional risks of fluctuating currency
values. Quota systems used by some countries to protect their domestic film
industry may adversely affect revenues from theatres that the Company develops
in such markets. Such differences in industry structure and regulatory and trade
practices may adversely affect the Company's ability to expand internationally
or to operate at a profit following such expansion.
SEASONALITY
The theatrical exhibition industry is seasonal in nature, with the highest
attendance and revenues occurring during the summer months and the holiday
seasons.
EMPLOYEES
As of April 3, 1997, the Company had approximately 1,800 full-time and 8,500
part-time employees. Approximately 11% of the part-time employees were minors
paid the minimum wage.
Fewer than one percent of the Company's employees, consisting primarily of
motion picture projectionists, are represented by a union, the International
Alliance of Theatrical Stagehand Employees and Motion Picture Machine Operators.
The Company believes that its relationship with this union is satisfactory.
As an employer covered by the ADA, the Company must make reasonable
accommodations to the limitations of employees and qualified applicants with
disabilities, provided that such reasonable accommodations do not pose an undue
hardship on the operation of the Company's business. In addition, many of the
Company's employees are covered by various government employment regulations,
including minimum wage, overtime and working conditions regulations.
LEGAL PROCEEDINGS
The following paragraphs summarize significant litigation and proceedings to
which the Company is a party.
IN RE: AMC SHAREHOLDER DERIVATIVE LITIGATION, CHANCERY COURT FOR NEW CASTLE
COUNTY, DELAWARE (CIVIL ACTION NO. 12855). On February 15, 1995, the court
ordered the consolidation of two derivative actions filed against four persons
who were then directors of the Company, Messrs. Stanley H. Durwood, Edward D.
Durwood, Paul E. Vardeman and Charles J. Egan, Jr., and one of its former
directors, Mr. Phillip Ean Cohen. The two cases were originally filed on January
27, 1993, by Mr. Scott C. Wallace and on April 16, 1993, by Mr. James M. Bird,
respectively. On December 8, 1994, the court, pursuant to a
73
<PAGE>
stipulation by the parties, entered an order approving Mr. Wallace's withdrawal
as a derivative plaintiff, granting the motion for intervention filed by Mr.
Philip J. Bogosian, Auginco, Mr. Norman M. Werther and Ms. Ellen K. Werther, and
authorizing the filing of the intervenors' complaint. The intervenors' complaint
includes substantially the same allegations as the Wallace and Bird complaints.
The two actions, as consolidated, are referred to below as the "Derivative
Action."
In the Derivative Action, plaintiffs allege breach of fiduciary duties of
care, loyalty and candor, mismanagement, constructive fraud and waste of assets
in connection with, among other allegations, the provision of film licensing,
accounting and financial services to the Company by AAE, certain other
transactions with affiliates of the Company, termination payments to a former
officer of the Company, certain transactions between the Company and National
Cinema Supply Corporation, and a fee paid by a subsidiary of the Company to Mr.
Cohen in connection with a transaction between the Company and TPIE. The
Derivative Action seeks unspecified money damages and equitable relief and
costs, including reasonable attorneys' fees.
On February 9, 1995, the defendants filed a motion to dismiss the Derivative
Action. Discovery has been stayed pending resolution of the motion to dismiss.
On October 10, 1996, counsel for the parties in the Derivative Action
entered into the Derivative Action Settlement Agreement providing for the
discharge and release of all claims against the defendants, the Durwood Family
Stockholders and the Company relating to such transactions, the proposed
settlement, the Merger, the Secondary Offering and indemnification of defendants
for their expenses, except claims for fraud, misrepresentation or omissions in
connection with the Secondary Offering and claims relating to the implementation
of the settlement. The Derivative Action Settlement Agreement provides, among
other matters, (i) for the dissolution of AAE, the merger of DI into AMCE and
the sale, within 12 months thereafter, of 3,000,000 shares of AMCE Common Stock
by the Durwood Family Stockholders in a public underwritten secondary offering
(which will only be made by means of a prospectus), (ii) for the payment by
certain of the defendants of an aggregate of approximately $1.3 million to
persons who were holders of AMCE Common Stock on January 2, 1996 (other than the
defendants, DI or the Durwood Family Stockholders), (iii) the nomination, for
three annual meetings, of two additional outside directors (initially, Messrs.
William T. Grant, II and John P. Mascotte) to serve on the AMCE Board whose
biographical information has been furnished to plaintiffs counsel and which
persons, to be nominated, must be serving on the board of another public company
or be a member of senior management of a publicly held company or a privately
held company with $50 million in annual revenues, (iv) that Messrs. Stanley H.
Durwood and Edward D. Durwood will cause the other Durwood Family Stockholders
to vote their shares with respect to the election and reelection of the New
Independent Directors in the same proportion as votes cast by all stockholders
not affiliated with AMCE, its directors and officers, (v) that the New
Independent Directors will have the ability to approve or disapprove (a) any
proposed transaction between AMCE and any of the Durwood Family Stockholders,
except with respect to compensation issues relating to Mr. Stanley H. Durwood or
any other Durwood Family Stockholder who is an officer of AMCE, which are to be
governed by existing AMCE Board procedures, and (b) the hiring and compensation
of any person related to Mr. Stanley H. Durwood who is not an officer of AMCE,
and (vi) that the New Independent Directors, together with either Mr. Charles J.
Egan, Jr. or Mr. Paul E. Vardeman, are to have the ability to approve or
disapprove all other related-party transactions with all officers, directors and
ten percent stockholders of AMCE.
The Derivative Action Settlement Agreement provides that AMCE will pay the
cost of providing notice of the settlement to its stockholders and for the fees
of the settlement administrator who will be responsible for distributing the
settlement amount to eligible stockholders.
The Derivative Action Settlement Agreement requires court approval and is
conditioned upon, among other things, the consummation of the Merger. It is not
anticipated that a hearing to approve the
74
<PAGE>
Derivative Action Settlement Agreement will occur until after the Merger is
consummated, because the Merger is a condition to the Derivative Action
Settlement Agreement.
In addition, from time to time the Company is involved in various legal
proceedings arising from the ordinary course of its business operations, such as
personal injury claims, employment matters and contractual disputes. The Company
believes that its potential liability with respect to proceedings currently
pending is not material in the aggregate to the Company's consolidated financial
position or results of operations.
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
YEARS
ASSOCIATED
WITH THE
NAME AGE(1) POSITIONS COMPANY(1)
- --------------------------------- ----------- --------------------------------- -----------------
<S> <C> <C> <C>
Stanley H. Durwood............... 76 Chairman of the Board, Chief 51(3)
Executive Officer and Director
(AMCE and AMC)
Peter C. Brown................... 38 President (AMCE)(4); Executive 5
Vice President (AMC); Chief
Financial Officer and Director
(AMCE and AMC)
Philip M. Singleton.............. 50 President (AMC)(4); Executive 22(3)
Vice President (AMCE); Chief
Operating Officer and Director
(AMCE and AMC)
Charles J. Egan, Jr.............. 64 Director (AMCE) 10
William T. Grant, II............. 46 Director (AMCE) --(2)
John P. Mascotte................. 57 Director (AMCE) --(2)
Paul E. Vardeman................. 67 Director (AMCE) 13(3)
Richard T. Walsh................. 43 Senior Vice President (AMC) 21(3)
Richard J. King.................. 48 Senior Vice President (AMC) 25(3)
Rolando B. Rodriguez............. 37 Senior Vice President (AMC) 21(3)
Richard L. Obert................. 57 Senior Vice President-Chief 8
Accounting and Information
Officer (AMCE and AMC)
Charles P. Stilley............... 42 President (AMC Realty, Inc.) 15(3)
Richard M. Fay................... 47 President (AMC Film Marketing) 1
</TABLE>
- --------------
(1) As of April 3, 1997.
(2) First elected to the AMCE Board on November 14, 1996.
(3) Includes years of service with the predecessor of the Company.
75
<PAGE>
(4) Prior to January 10, 1997, Messrs. Brown and Singleton were serving as
Executive Vice Presidents of both AMCE and AMC. They were appointed to their
present positions as Presidents of AMCE and AMC, respectively, on January
10, 1997.
All directors are elected annually, and each holds office until his
successor has been duly elected and qualified or his earlier resignation or
removal. There are no family relationships between any Director and any
Executive Officer of the Company.
All current Executive Officers of the Company hold such offices at the
pleasure of the AMCE Board, subject, in the case of Messrs. Stanley H. Durwood,
Peter C. Brown, Philip M. Singleton and Richard M. Fay, to rights under their
respective employment agreements.
Mr. Stanley H. Durwood has served as a Director of AMCE from its
organization on June 14, 1983, and of AMC since August 2, 1968. Mr. Durwood has
served as Chairman of the Board of Directors of AMCE and AMC since February
1986, and has served as Chief Executive Officer of AMCE since June 1983, and of
AMC since February 20, 1986. Mr. Durwood served as President of AMCE (i) from
June 1983 through February 20, 1986, (ii) from May 1988 through June 1989, and
(iii) from October 6, 1995 to January 10, 1997. Mr. Durwood served as President
of AMC (i) from August 2, 1968 through February 20, 1986, (ii) from May 13, 1988
through November 8, 1990, and (iii) from October 6, 1995 to January 10, 1997.
Mr. Durwood is a graduate of Harvard University.
Mr. Peter C. Brown has served as a Director of AMCE and AMC since November
12, 1992. Mr. Brown was appointed President of AMCE on January 10, 1997. Mr.
Brown served as Executive Vice President of AMCE from August 3, 1994 to January
10, 1997. Mr. Brown has served as Executive Vice President of AMC since August
3, 1994, and as Chief Financial Officer of AMCE and AMC since November 14, 1991.
Mr. Brown served as Senior Vice President of AMCE and AMC from November 14, 1991
until his appointment as Executive Vice President in August 1994. Mr. Brown
served as Treasurer of AMCE and AMC from September 28, 1992 through September
19, 1994. Prior to November 14, 1991, Mr. Brown served as a consultant to AMCE
from October 1990 to October 1991. Mr. Brown is a graduate of the University of
Kansas.
Mr. Philip M. Singleton has served as a Director of AMCE and AMC since
November 12, 1992. Mr. Singleton was appointed President of AMC on January 10,
1997. Mr. Singleton has served as Executive Vice President of AMCE since August
3, 1994, and as Chief Operating Officer of AMCE and AMC since November 14, 1991.
Mr. Singleton served as Executive Vice President of AMC from August 3, 1994 to
January 10, 1997. Mr. Singleton served as Senior Vice President of AMCE and AMC
from November 14, 1991 until his appointment as Executive Vice President in
August 1994. Prior to November 14, 1991, Mr. Singleton served as Vice President
in charge of operations for the Southeast Division of AMC from May 10, 1982. Mr.
Singleton holds an undergraduate degree from California State University,
Sacramento, and an M.B.A. degree from the University of South Florida.
Mr. Charles J. Egan, Jr., has served as a Director of AMCE since October 30,
1986. Mr. Egan is Vice President of Hallmark Cards, Incorporated, and was
General Counsel of such company until December 31, 1996. Hallmark Cards,
Incorporated is primarily engaged in the business of greeting cards and related
social expressions products, Crayola crayons and the production of movies for
television. Mr. Egan also serves as a member of the Board of Trustees, Treasurer
and Chairman of the Finance Committee of the Kansas City Art Institute. Mr. Egan
holds an A.B. degree from Harvard University and an LL.B. degree from Columbia
University.
Mr. William T. Grant, II has served as a Director of AMCE since November 14,
1996. Mr. Grant is Chairman of the Board, President, Chief Executive Officer and
a Director of LabONE, Inc. and Chairman of the Board, Chief Executive Officer
and a Director of Seafield Capital Corporation. Mr. Grant served as President of
Seafield Capital Corporation from 1990 to 1993, at which time he became Chairman
of the Board of Seafield Capital Corporation. LabONE, Inc. provides risk
appraisal laboratory testing services to
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<PAGE>
the insurance industries in the United States and Canada and is a subsidiary of
Seafield Capital Corporation. Seafield Capital Corporation is a holding company
whose subsidiaries operate primarily in the healthcare and insurance services
areas. Mr. Grant also serves on the board of directors of Commerce Bancshares,
Inc., Kansas City Power & Light Company, Business Men's Assurance Company of
America and Response Oncology, Inc. Mr. Grant holds a B.A. degree from the
University of Kansas and an M.B.A. degree from the Wharton School of Finance at
the University of Pennsylvania.
Mr. John P. Mascotte has served as a Director of AMCE since November 14,
1996. Mr. Mascotte is Chairman of the Board of Johnson & Higgins of Missouri,
Inc., a privately held insurance broker. Mr. Mascotte is also a consultant to
the First District, African Methodist Episcopal Church and was Chairman of the
Heart of America 1996 United Way General Campaign. Prior thereto, Mr. Mascotte
served as Chairman of the Board and Chief Executive Officer of The Continental
Corporation, a large property-casualty insurer. Mr. Mascotte also serves on the
board of directors of Hallmark Cards, Incorporated, Business Men's Assurance
Company of America and American Home Products Corporation. In addition, from
1983 until 1996, Mr. Mascotte served on the board of directors of Chemical
Banking Corporation. Mr. Mascotte holds B.S. degrees from St. Joseph's College,
Rensselaer, Indiana, and an LL.B. degree from the University of Virginia. Mr.
Mascotte is also a certified public accountant and a chartered life underwriter.
Mr. Paul E. Vardeman has served as a Director of AMCE since June 14, 1983.
Mr. Vardeman is a director, officer and shareholder of the law firm of
Polsinelli, White, Vardeman & Shalton, P.C., Kansas City, Missouri, and has been
associated with such law firm since 1982. Prior thereto, Mr. Vardeman served as
a Judge of the Circuit Court of Jackson County, Missouri. Mr. Vardeman holds
undergraduate and J.D. degrees from the University of Missouri-Kansas City.
Mr. Richard T. Walsh has served as Senior Vice President in charge of
operations for the West Division of AMC since July 1, 1994. Previously, Mr.
Walsh served as Vice President in charge of operations for the Central Division
of AMC from June 10, 1992, and as Vice President in charge of operations for the
Midwest Division of AMC from December 1, 1988.
Mr. Richard J. King has served as Senior Vice President in charge of
operations for the Northeast Division of AMC since January 4, 1995. Previously,
Mr. King served as Vice President in charge of operations for the Northeast
Division of AMC from June 10, 1992, and as Vice President in charge of
operations for the Southwest Division of AMC from October 30, 1986.
Mr. Rolando B. Rodriguez has served as Senior Vice President in charge of
operations for the South Division of AMC since April 2, 1996. Previously, Mr.
Rodriguez served as Vice President and South Division Operations Manager of AMC
from July 1, 1994, as Assistant South Division Operations Manager of AMC from
February 12, 1993, as South Division Senior Operations Manager from March 29,
1992, and as South Division Operations Manager from August 6, 1989.
Mr. Richard L. Obert has served as Senior Vice President-Chief Accounting
and Information Officer of AMCE and AMC since November 9, 1995, and prior
thereto served as Vice President and Chief Accounting Officer of AMCE and AMC
from January 9, 1989.
Mr. Charles P. Stilley has served as President of AMC Realty, Inc., a
wholly-owned subsidiary of AMC, since February 9, 1993, and prior thereto served
as Senior Vice President of AMC Realty, Inc. from March 3, 1986.
Mr. Richard M. Fay has served as President-AMC Film Marketing, a division of
AMC, since September 8, 1995. Previously, Mr. Fay served as Senior Vice
President and Assistant General Sales Manager of Sony Pictures from 1994 until
he joined AMC. From 1991 to 1994, Mr. Fay served as Vice President and Head Film
Buyer for the eastern division of United Artists Theatre Circuit, Inc.
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<PAGE>
COMPENSATION OF DIRECTORS
From March 29, 1996 through November 13, 1996, Messrs. Charles J. Egan, Jr.
and Paul E. Vardeman received prorated annual cash compensation of $20,000 each
for their service as members of the Boards of AMCE and AMC and $24,000 each for
their service as members of the Audit Committee of the Boards of AMCE and AMC.
They also received $900 per hour for attending meetings of (i) any board of
directors on which they served, (ii) the Audit Committee after the twelfth
meeting during the fiscal year and (iii) any other committee on which they
served.
Effective November 14, 1996, each of AMCE's non-employee directors receives
an annual fee of $32,000 for service on the AMCE Board and an additional $4,000
for each committee of the AMCE Board on which he serves, and, in addition, will
receive $1,500 and $1,000, respectively, for each Board and Board committee
meeting which he attends.
For the fiscal year ended April 3, 1997, Messrs. Charles J. Egan, Jr.,
William T. Grant II, John P. Mascotte and Paul E. Vardeman received $141,900,
$64,000, $61,000 and $131,000, respectively, for their services.
The AMCE Board has also authorized that Messrs. Charles J. Egan, Jr. and
Paul E. Vardeman be paid reasonable compensation for their services as members
of the Special Committee appointed to consider the Merger of AMCE and DI. For
the fiscal year ended April 3, 1997, Messrs. Charles J. Egan, Jr. and Paul E.
Vardeman each received $35,000 for their services related to the Special
Committee.
COMPENSATION OF MANAGEMENT
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer and each of the four other most highly compensated
Executive Officers of the Company (determined as of the end of the last fiscal
year and hereafter referred to as the "Named Executive Officers") for the last
three fiscal years ended April 3, 1997, March 28, 1996 and March 30, 1995,
respectively.
SUMMARY COMPENSATION TABLE*
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS--
ANNUAL COMPENSATION SECURITIES
------------------------------------------------------ UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS/ ALL OTHER
POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) SARS(#) COMPENSATION(2)
- ------------------------- ----------- ---------- ---------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Stanley H. Durwood....... 1997 $ 527,322 $ -- N/A 65,000 $ --
Chief Executive 1996 492,634 275,000 N/A -- --
Officer 1995 452,088 108,949 N/A 22,500 --
Peter C. Brown........... 1997 271,364 25,500 N/A 4,500 4,976
Chief Financial 1996 257,439 137,500 N/A -- 4,726
Officer 1995 234,836 55,433 N/A 4,500 4,657
Philip M. Singleton...... 1997 303,125 28,500 N/A 4,500 5,003
Chief Operating 1996 285,311 154,000 N/A -- 4,686
Officer 1995 273,247 64,149 N/A 4,500 4,663
Richard T. Walsh......... 1997 223,073 41,545 N/A 2,250 4,964
Senior Vice President 1996 207,204 80,000 N/A 2,250 4,620
1995 200,855 35,500 217,112 -- 63,464
Richard M. Fay........... 1997 294,369 32,650 N/A 2,250 1,464
President--AMC Film 1996 150,049 55,000 66,283 -- --
Marketing 1995 -- -- -- -- --
</TABLE>
78
<PAGE>
- --------------
(1) N/A denotes not applicable. Fiscal 1996 includes a lump sum payment of
$50,000 paid to Mr. Richard M. Fay for costs associated with relocation.
Fiscal 1995 includes a lump sum payment and gross up of taxes on moving
expenses totaling $209,408 paid to Mr. Richard T. Walsh. For the years
presented, excluding Mr. Richard M. Fay in 1996 and Mr. Richard T. Walsh in
1995, perquisites and other personal benefits did not exceed the lesser of
$50,000 or ten percent of total annual salary and bonus.
(2) For fiscal 1997, All Other Compensation includes AMC's contributions under
AMC's 401(k) Plan and the Executive Savings Plan, both of which are defined
contribution plans, in the aggregate amount of $4,976 for Mr. Peter C.
Brown, $5,003 for Mr. Philip M. Singleton, $4,964 for Mr. Richard T. Walsh
and $1,464 for Mr. Richard M. Fay. For fiscal 1996, All Other Compensation
includes contributions under such plans in the aggregate amount of $4,726
for Mr. Peter C. Brown, $4,686 for Mr. Philip M. Singleton and $4,620 for
Mr. Richard T. Walsh. For fiscal 1995, All Other Compensation includes AMC's
contributions to such plans in the amount of $4,657 for Mr. Peter C. Brown,
$4,663 for Mr. Philip M. Singleton and $4,786 for Mr. Richard T. Walsh. In
addition, moving expense for Mr. Richard T. Walsh is included in the amount
of $58,678.
* As of April 3, 1997, the Named Executive Officers held performance share
awards under AMCE's 1994 Stock Option and Incentive Plan entitling them to
receive shares of AMCE Common Stock at the end of a performance period upon
satisfaction of performance goals. See "--Long-Term Incentive Plan." The
number of shares issuable to each such person (and the value of such shares
as of April 3, 1997) under awards in effect as of April 3, 1997, upon
attainment of threshold, target and maximum performance goals is as follows:
Threshold--Mr. Stanley H. Durwood--30,000 shares ($596,250); Mr. Peter C.
Brown--6,000 shares ($119,250); Mr. Philip M. Singleton--6,000 shares
($119,250); Mr. Richard T. Walsh--3,000 shares ($59,625); and Mr. Richard M.
Fay--2,000 shares ($39,750); Target--Mr. Stanley H. Durwood--45,000 shares
($894,375); Mr. Peter C. Brown--9,000 shares ($178,875); Mr. Philip M.
Singleton--9,000 shares ($178,875); Mr. Richard T. Walsh--4,500 shares
($89,438); and Mr. Richard M. Fay--3,000 shares ($59,625); Maximum-- Mr.
Stanley H. Durwood--90,000 shares ($1,788,750); Mr. Peter C. Brown--18,000
shares ($357,750); Mr. Philip M. Singleton--18,000 shares ($357,750); Mr.
Richard T. Walsh--9,000 shares ($178,875); and Mr. Richard M. Fay--6,000
shares ($119,250).
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<PAGE>
OPTION GRANTS
The following table provides certain information concerning individual
grants of stock options made during the last completed fiscal year under the AMC
Entertainment Inc. 1994 Stock Option and Incentive Plan (the "Incentive Plan")
to each of the Named Executive Officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- --------------------------- -------------- -------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stanley H. Durwood......... 42,500 41.16% $ 24.500 4/02/06 $ 654,837 $ 1,659,484
22,500 21.79% 26.375 5/15/06 373,208 945,788
Peter C. Brown............. 4,500 4.36% 26.375 5/15/06 74,642 189,158
Philip M. Singleton........ 4,500 4.36% 26.375 5/15/06 74,642 189,158
Richard T. Walsh........... 2,250 2.18% 26.375 5/15/06 37,321 94,579
Richard M. Fay............. 2,250 2.18% 18.500 11/07/06 26,178 66,340
</TABLE>
- --------------
(1) The stock options granted during the fiscal year ended April 3, 1997 are
eligible for exercise based upon a vesting schedule. After the first
anniversary of the grant date, 50% of the options will be eligible for
exercise. After the second anniversary of the grant date, all options are
fully vested. Vesting of options will accelerate upon the optionee's death,
disability or retirement, or upon the optionee's termination of employment
within one year after the occurrence of certain change in control events.
The Compensation Committee of the AMCE Board may permit accelerated exercise
of options if certain extraordinary events occur, such as a merger or
liquidation of AMCE, the sale of substantially all of the assets of AMCE, a
subsidiary or a division, or a change in control of AMCE. With the consent
of the Compensation Committee, optionees may satisfy tax withholding
obligations by electing to have shares otherwise issuable upon exercise of
an option withheld.
(2) These columns show the hypothetical gains of "option spreads" of the
outstanding options granted based on assumed annual compound stock
appreciation rates of five percent and ten percent over the options' terms.
The five percent and ten percent assumed rates of appreciation are mandated
by the rules of the Commission and do not represent the Company's estimate
or projections of the future prices of AMCE Common Stock.
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<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of April 3, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/SARS AT
SHARES FY-END(#) FY-END($)(1)
ACQUIRED ON VALUE ---------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE PRICE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ------------- ------------ -------------- --------- ------------- --------------
(SHARES)
<S> <C> <C> <C> <C> <C> <C> <C>
Stanley H. Durwood......... -- -- -- 22,500 $ 26.375 $ -- $ --
21,250 21,250 24.50 -- --
22,500 -- 11.75 182,813 --
Peter C. Brown............. -- -- -- 4,500 26.375 -- --
4,500 -- 11.75 36,563 --
112,500 37,500 9.250 1,195,313 398,438
Philip M. Singleton........ -- -- -- 4,500 26.375 -- --
4,500 -- 11.75 36,563 --
112,500 37,500 9.250 1,195,313 398,438
Richard T. Walsh........... -- -- -- 2,250 26.375 -- --
1,125 1,125 14.50 6,047 6,047
22,500 7,500 9.375 236,250 78,750
Richard M. Fay............. -- -- -- 2,250 18.50 -- 3,094
</TABLE>
- --------------
(1) Values for "in-the-money" outstanding options represent the positive spread
between the respective exercise prices of the outstanding options and the
value of AMCE Common Stock as of April 3, 1997.
LONG-TERM INCENTIVE PLAN
The following table provides certain information concerning shares
("Performance Shares") issuable to the participants at the end of a performance
period ending April 2, 1998 (the "Performance Period") at Threshhold, Target and
Maximum levels of performance under performance stock awards approved by the
Compensation Committee during the last completed fiscal year for each of the
Named Executive Officers.
LONG-TERM INCENTIVE PLANS AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUT UNDER
NUMBER(1) OF OTHER PERIOD UNTIL NON-STOCK PRICE BASED PLANS
SHARES, UNITS MATURATION OR -------------------------------------------
NAME OR OTHER RIGHTS(#) PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
- ------------------------------- ------------------- ------------------ --------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Stanley H. Durwood............. -- -- -- -- --
Peter C. Brown................. -- -- -- -- --
Philip M. Singleton............ -- -- -- -- --
Richard T. Walsh............... -- -- -- -- --
Richard M. Fay................. 6,000 2 years 2,000 3,000 6,000
</TABLE>
- --------------
(1) Maximum number of shares issuable under awards made during the fiscal year.
81
<PAGE>
A participant's eligibility to receive up to one-half of the maximum number
of Performance Shares issuable under an award is based upon changes in the
"private market value per share" of AMCE Common Stock ("PMVPS") over the
Performance Period. PMVPS is determined on a fully diluted basis (assuming
exercise of all outstanding shares of AMCE's Convertible Preferred Stock, AMCE
Class B Stock, options and other rights to acquire shares of AMCE Common Stock),
based on a multiple of theatre EBITDA (theatre EBITDA is consolidated EBITDA
less National Cinema Network, Inc. EBITDA), plus the book value of National
Cinema Network, Inc., plus cash and equivalents, investments and investments in
other long-term assets, less corporate borrowings, capital lease obligations and
the carrying value of minority interests. EBITDA is earnings before interest,
taxes, depreciation and amortization. National Cinema Network, Inc. is a
subsidiary of AMCE.
A participant's eligibility to receive up to the remaining one-half of the
maximum number of Performance Shares issuable under an award is based upon
changes in "total return to stockholders" ("TRS"), which is measured by
increases in the market value of an investment in shares of AMCE Common Stock,
assuming reinvestment of any dividends received.
PMVPS and TRS are referred to individually and collectively herein as
"Performance Criterion" and "Performance Criteria," respectively.
Such Performance Criteria will be measured against changes in the Standard &
Poor's 500 Index ("S&P 500") over the Performance Period. Required achievement
levels over the Performance Period for both PMVPS and TRS are as set forth
below:
<TABLE>
<C> <S>
Maximum: 2,000 basis points higher than the percentage change in the S&P 500 over the
Performance Period;
Target: 750 basis points higher than the percentage change in the S&P 500 over the
Performance Period;
Threshold: No difference between the percentage change in the S&P 500 and the
percentage change in the Performance Criterion over the Performance Period.
</TABLE>
Generally, no shares will be issued with respect to performance over the
Performance Period as measured by a Performance Criterion if such performance
does not at least meet the Threshold achievement level over the Performance
Period. If performance as so measured by a Performance Criterion falls between
the Threshold and Target achievement levels, the number of Performance Shares
issuable under an Award with respect to that Performance Criterion will be
determined to the nearest whole number of shares, so that the actual Award will
be at the same percentage between the Threshold and Target award levels as the
actual achievement level falls between the Threshold and Target achievement
levels. Similarly, if performance falls between Target and Maximum achievement
levels, the number of Performance Shares will be determined to the nearest whole
number of shares, so that the actual award will be at the same percentage
between the Target and Maximum award levels as the actual achievement level
falls between the Target and Maximum levels. In no event will the number of
Performance Shares issuable under an award with respect to a Performance
Criterion exceed the number of Performance Shares issuable upon attaining the
Maximum achievement level over the Performance Period with respect to such
Performance Criterion.
The right to receive Performance Shares will be accelerated and such
Performance Shares issued, based on the achievement levels of the Performance
Criteria measured to the date of termination, in the event of a participant's
death, disability or retirement, or termination of employment within one year
after the occurrence of certain change of control events. The Compensation
Committee of the AMCE Board may waive performance goals if certain extraordinary
events occur, such as a merger or liquidation of AMCE, the sale of substantially
all of the assets of AMCE, a subsidiary or a division, or a change in control of
AMCE.
82
<PAGE>
With the consent of the Compensation Committee, a Grantee may satisfy his
tax withholding obligations by electing to have Performance Shares otherwise
issuable withheld.
Until Performance Shares are issued, participants have no dividend or voting
rights with respect to Performance Shares.
DEFINED BENEFIT RETIREMENT AND SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
AMC sponsors a defined benefit retirement plan (the "Retirement Plan") which
provides benefits to certain employees of AMC and its subsidiaries based upon
years of credited service and the highest consecutive five-year average annual
remuneration for each participant. For purposes of calculating benefits, average
annual compensation is limited by Section 401(a)(17) of the Internal Revenue
Code, and is based upon wages, salaries and other amounts paid to the employee
for personal services, excluding certain special compensation. A participant
earns a vested right to an accrued benefit under the Retirement Plan upon
completion of five years of vesting service.
AMC also sponsors a Supplemental Executive Retirement Plan to provide the
same level of retirement benefits that would have been provided under the
Retirement Plan had the federal tax law not been changed in the Omnibus Budget
Reconciliation Act of 1993, which reduced the amount of compensation which can
be taken into account in a qualified retirement plan from $235,840 (in 1993)
(the "Old Limit") to $160,000 (in 1997).
The following table shows the total estimated annual pension benefits
(without regard to minimum benefits) payable to a covered participant under
AMC's Retirement Plan and the Supplemental Executive Retirement Plan, assuming
retirement in calendar 1997 at age 65 payable in the form of a single life
annuity. The benefits are not subject to any deduction for Social Security or
other offset amounts. The following table assumes the Old Limit would have been
increased to $260,000 in 1997.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
HIGHEST CONSECUTIVE FIVE-YEAR -----------------------------------------------------
AVERAGE ANNUAL COMPENSATION 15 20 25 30 35
- -------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000.................................... $ 17,716 $ 23,621 $ 29,527 $ 35,432 $ 41,337
$150,000.................................... $ 21,466 $ 28,621 $ 35,777 $ 42,932 $ 50,087
$175,000.................................... $ 25,216 $ 33,621 $ 42,027 $ 50,432 $ 58,837
$200,000.................................... $ 28,966 $ 38,621 $ 48,277 $ 57,932 $ 67,587
$225,000.................................... $ 32,716 $ 43,621 $ 54,527 $ 65,432 $ 76,337
$260,000.................................... $ 37,966 $ 50,621 $ 63,277 $ 75,932 $ 88,587
</TABLE>
As of April 3, 1997, the years of credited service under the Retirement Plan
for each of the Named Executive Officers were: Mr. Peter C. Brown, 6 years; Mr.
Philip M. Singleton, 23 years; Mr. Richard T. Walsh, 22 years; and Mr. Richard
M. Fay, one year. The final amount distributed to Mr. Stanley H. Durwood in
fiscal 1995 from the Company's Retirement Plan was $42,067, and was not included
in the Summary Compensation Table. In addition, the benefit Mr. Stanley H.
Durwood accrued under the Supplemental Executive Retirement Plan in fiscal 1997
was $76,950 and is not included in the Summary Compensation Table.
AMC established a Retirement Enhancement Plan ("REP") with an effective date
of March 29, 1996 for the benefit of officers who from time to time may be
designated as eligible participants therein by the Board of Directors. The REP
is a non-qualified deferred compensation plan designed to provide an unfunded
retirement benefit to an eligible participant in an amount equal to (i) sixty
percent (60%) of his or her average compensation (including paid and deferred
incentive compensation) during the last three full years of employment, less
(ii) the sum of (A) such participant's benefits under the Retirement Plan and
Social Security, and (B) the amount of a straight life annuity commencing at the
participant's normal retirement date attributable to AMC's contributions under
the Supplemental Executive Retirement Plan,
83
<PAGE>
the 401(k) Savings Plan, the Non-qualified Deferred Compensation Plan and the
Executive Savings Plan. The base amount in clause (i) will be reduced on a pro
rata basis if the participant completes fewer than twenty-five (25) years of
service. The REP benefit vests upon the Participant's attainment of age 55 or
completion of fifteen (15) years of service, whichever is later, and may
commence to a vested participant retiring on or after age 55 (who has
participated in the plan for at least 5 years) on an actuarially reduced basis
(6 2/3% for each of the first five years by which commencement precedes age 65
and an additional 3 1/3% for each year by which commencement precedes age 60).
Benefits commence at a participant's normal retirement date (I.E., the later of
age 65 or the participant's completion of five years of service with AMC)
whether or not the participant continues to be employed by AMC. The accrued
benefit payable upon total and permanent disability is not reduced by reason of
early commencement. Participants become fully vested in their rights under the
REP if their employment is terminated without cause or as a result of a change
in control, as defined in the REP. No death, disability or retirement benefit is
payable prior to a participant's early retirement date or prior to the date any
severance payments to which the participant is entitled cease.
Presently, Mr. Stanley H. Durwood, Mr. Peter C. Brown and Mr. Philip M.
Singleton have been designated as eligible to participate in the REP. The amount
payable to Mr. Stanley H. Durwood with respect to fiscal 1997 under the REP is
$345,000. The estimated annual amounts that Mr. Brown and Mr. Singleton will be
eligible to receive under the REP at age 65 are $207,000 and $199,000,
respectively; such amounts are based on certain assumptions respecting their
future compensation amounts and the amounts of AMC contributions under other
plans. Actual amounts received by such individuals under the REP may be
different than those estimated.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Mr. Stanley H. Durwood has an employment agreement with AMCE and AMC dated
January 26, 1996 retaining him as Chairman and Chief Executive Officer and
President. It provides for an annual base salary of no less than $500,000, plus
payments and awards under AMC's Executive Incentive Program ("EIP"), the
Incentive Plan and other bonus plans in effect for Executive Officers at a level
reflecting his position, plus such other amounts as may be paid under any other
compensatory arrangement as determined in the sole discretion of the
Compensation Committee. Mr. Durwood's current annual base salary is $540,000.
The Company has also agreed to use its best efforts to provide Mr. Durwood up to
$5,000,000 in life insurance and to pay the premiums thereon and taxes resulting
from such payment. Mr. Durwood's employment agreement has a term of three years
and is automatically extended one year on its anniversary date, January 26, so
that as of such date each year the agreement has a three-year term. The
employment agreement is terminable without severance if he engages in
intentional misconduct or a knowing violation of law or breaches his duty of
loyalty to the Company. The agreement also is terminable (i) by Mr. Durwood, in
the event of the Company's breach, and (ii) by the Company, without cause or in
the event of Mr. Durwood's death or disability, in each case with severance
payments equal to three times the sum of his annual base salary in effect at the
time of termination plus the average of annual incentive or discretionary cash
bonuses paid during the three fiscal years preceding the year of termination.
The Company may elect to pay such severance payments in monthly installments
over a period of three years or in a lump sum after discounting such amount to
its then present value. The aggregate amount payable under this employment
agreement, assuming termination with severance occurred as of April 3, 1997, was
approximately $1,763,000.
Messrs. Peter C. Brown and Philip M. Singleton each have employment
agreements with AMC dated September 26, 1994, providing for annual base salaries
of no less than $227,000 and $266,000, respectively, and bonuses resulting from
the EIP or other bonus arrangement, if any, as determined from time to time at
the sole discretion of the Compensation Committee upon the recommendation of the
Chairman of the Board. The current annual base salaries of Messrs. Brown and
Singleton are $293,000
84
<PAGE>
and $312,000, respectively. Each employment agreement has a term of two years.
On each September 27, commencing in 1995, one year shall be added to the term of
each employment agreement, so that each employment agreement shall always have a
two-year term as of each anniversary date. Each employment agreement terminates
without severance upon such employee's resignation, death or his disability as
defined in his employment agreement, or upon AMC's good faith determination that
such employee has been dishonest or has committed a breach of trust respecting
AMC. AMC may terminate each employment agreement at any time, with severance
payments in an amount equal to twice the annual base salary of such employee on
the date of termination. Each employee may terminate his employment agreement if
Mr. Stanley H. Durwood shall fail to control AMC as defined in the employment
agreement and receive severance payments in an amount equal to twice his annual
base salary on the date of termination. AMC may elect to pay any severance
payments in a lump sum after discounting such amount to its then present value,
or over a two-year period. The aggregate value of all severance benefits to be
paid to such employee shall not exceed 299% of such employee's "base amount" as
defined in the Code for the five-year period immediately preceding the date of
termination. The aggregate amount payable under these employment agreements,
assuming termination by reason of a change of control and payment in a lump sum
as of April 3, 1997, was approximately $1,110,000.
Mr. Richard M. Fay has an employment agreement with AMC dated April 16, 1996
which provides for an annual base salary of $275,000 and, in the first year of
the employment agreement, an additional $50,000 for costs associated with
relocation. Mr. Fay's current annual base salary is $280,000. Mr. Fay is also
eligible to receive payments resulting from the EIP or other bonus arrangement,
if any, as determined from time to time in the sole discretion of the
Compensation Committee of the Board of Directors of AMC upon the recommendation
of the Chief Executive Officer of AMC. The employment agreement has a term of
three years, from September 8, 1995 through September 7, 1998. The employment
agreement terminates without severance upon Mr. Fay's resignation, death or
disability as defined in his employment agreement, or upon AMC's good faith
determination that Mr. Fay has been dishonest or has committed a breach of trust
respecting AMC. AMC may terminate the employment agreement at any time, with
severance payments in an amount equal to, at AMC's option, either (i) Mr. Fay's
base salary per month in effect at the time of termination, payable over the
remaining term of his employment, or (ii) the net present value of the monthly
payments described in (i) above, payable within 30 days of the date of
termination. Any severance payable to Mr. Fay shall be reduced by any wages,
compensation or income, cash or otherwise, received by Mr. Fay from sources
other than AMC during the remaining term of his employment agreement following
the date of termination. The aggregate amount payable under this employment
agreement, assuming termination with severance occurred as of April 3, 1997, was
approximately $372,000.
As permitted by the Incentive Plan, stock options and Performance Share
awards granted to participants thereunder provide for acceleration upon the
termination of employment within one year after the occurrence of certain change
in control events, whether such termination is voluntary or involuntary, or with
or without cause. See "--Option/SAR Grants in Last Fiscal Year" and "--Long-Term
Incentive Plans--Awards in Last Fiscal Year." In addition, the Compensation
Committee may permit acceleration upon the occurrence of certain extraordinary
transactions which may not constitute a change of control.
AMC maintains a severance pay plan for full-time salaried nonbargaining
employees with at least 90 days of service. For an eligible employee who is
subject to the Fair Labor Standards Act ("FLSA") overtime pay requirements (a
"nonexempt eligible employee"), the plan provides for severance pay in the case
of involuntary termination of employment due to layoff of the greater of two
week's basic pay or one week's basic pay multiplied by the employee's full years
of service up to no more than twelve weeks' basic pay. There is no severance pay
for a voluntary termination, unless up to two weeks' pay is authorized in lieu
of notice. There is no severance pay for an involuntary termination due to an
employee's misconduct. Only two weeks' severance pay is paid for an involuntary
termination due to
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substandard performance. For an eligible employee who is exempt from the FLSA
overtime pay requirements, severance pay is discretionary (at the Department
Head/Supervisor level), but will not be less than the amount that would be paid
to a nonexempt eligible employee.
CERTAIN TRANSACTIONS
Since their formation, AMCE and AMC have been members of an affiliated group
of companies (the "DI affiliated group") beneficially owned by Mr. Stanley H.
Durwood and members of his family. Mr. Stanley H. Durwood is President,
Treasurer and the sole Director of DI and Chairman of the Board, Chief Executive
Officer and a Director of AMCE and AMC. There have been transactions involving
AMCE or its subsidiaries and the DI affiliated group in prior years. AMCE
intends to ensure that all transactions with DI or other related parties are
fair, reasonable and in the best interests of the Company. In that regard, the
Audit Committee of the AMCE Board reviews all material proposed transactions
between the Company and DI or other related parties to determine that, in their
best business judgment, such transactions meet that standard. The Audit
Committee consists of Messrs. Egan, Grant and Mascotte, none of whom are
officers or employees of the Company nor stockholders, directors, officers or
employees of DI. Set forth below is a description of significant transactions
which have occurred since April 1, 1994 or involve receivables that remain
outstanding as of April 3, 1997.
Certain corporate departments of AMC perform general and administrative
services for DI and its subsidiaries. AMC charged DI and its subsidiaries
$116,000 for such services for fiscal 1996 and 1995. There was no general and
administrative allocation in fiscal 1997.
Periodically, the Company and DI reconcile any amounts owed by one company
to the other. Charges to the intercompany account have included the allocation
of the Company's general and administrative expenses and payments made by the
Company on behalf of DI. The largest balance owed by DI and its subsidiaries to
the Company during each of fiscal years 1995, 1996 and 1997 was $831,000,
$795,000 and $795,000, respectively. As of April 3, 1997, DI and its
subsidiaries owed the Company $181,000.
Ms. Marjorie D. Grant, a Vice President of AMC and the sister of Mr. Stanley
H. Durwood, has an employment agreement with AMCE providing for an annual base
salary of no less than $110,000, an automobile and, at the sole discretion of
the Chief Executive Officer of AMCE, a year-end bonus. Ms. Grant's current
annual base salary is $110,000. During fiscal 1997, Ms. Grant received a bonus
of $10,000 and a lump sum payment in lieu of a base salary increase of $4,400.
Ms. Grant's employment agreement, executed July 1, 1996, terminates on June 30,
1999, or upon her death or disability. The agreement provides that in the event
Mr. Stanley H. Durwood fails to control the management of AMCE by reason of its
sale, merger or consolidation, or because of his death or disability, or for any
other reason, then AMCE and Ms. Grant would each have the option to terminate
the agreement. In such event, AMCE would pay to Ms. Grant in cash a sum equal to
the aggregate cash compensation, exclusive of bonus, to the end of the term of
her employment under the agreement, after discounting such amount to its then
present value using a discount rate equal to the prime rate of interest
published in THE WALL STREET JOURNAL on the date of termination. The aggregate
amount payable under the employment agreement, assuming termination by reason of
a change of control and payment in a lump sum as of April 3, 1997, was
approximately $225,000.
Since July 1992, Mr. Jeffery W. Journagan, a son-in-law of Mr. Stanley H.
Durwood, has been employed by a subsidiary of AMCE. Mr. Journagan's current
salary is approximately $82,540; he received a bonus for fiscal 1996 in the
amount of $21,600 and will receive a bonus for fiscal 1997 in the amount of
$7,500.
In January 1987, AMC loaned $200,000 to Mr. Donald P. Harris, one of the
named Executive Officers in fiscal 1995, in connection with the purchase of his
principal residence. Principal on the note originally was due on January 1,
1992, but the note was extended to January 16, 1997 and the interest rate was
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increased from 6% to 7 1/2%. The employment of Mr. Harris by the Company or its
affiliates ceased effective as of October 1, 1995. Mr. Harris paid AMC $110,249,
the remaining amount of the principal and accrued interest on the loan, on
October 1, 1995.
The Company and Mr. Edward D. Durwood entered into an Agreement and General
Release effective October 5, 1995, pursuant to which Mr. Edward D. Durwood was
terminated as President, Vice Chairman of the Board and Director of AMCE and AMC
upon the recommendation of the Compensation Committee without cause with the
consent of the Company's Board of Directors. The Company paid Mr. Edward D.
Durwood $498,398 in severance. The Agreement and General Release also provides
for mutual releases between the Company and Mr. Durwood.
AMC and Mr. Donald P. Harris entered into an Agreement and Release effective
October 1, 1995, pursuant to which Mr. Harris resigned as President--AMC Film
Marketing, Inc. AMC paid Mr. Harris $467,850 in severance. Mr. Harris paid AMC
$110,249, the remaining amount of the principal and accrued interest on a loan
he had previously received from AMC. The Agreement and Release also provided for
mutual releases between AMC and Mr. Harris.
In November 1995, AMC purchased the principal residence of Mr. Richard M.
Fay, an Executive Officer, for $500,000. AMC is currently marketing the
residence and intends to sell it.
During fiscal 1996 and 1997, the Company retained Polsinelli, White,
Vardeman & Shalton, P.C., of which Mr. Vardeman, a director of AMCE, is a
director, officer and shareholder, to provide certain legal services to a
subsidiary of AMCE.
For a description of certain employment agreements between the Company and
Messrs. Stanley H. Durwood, Peter C. Brown, Philip M. Singleton and Richard M.
Fay, see "--Management of the Company--Employment Contracts, Termination of
Employment and Change in Control Arrangements."
DESCRIPTION OF AMCE CAPITAL STOCK
The authorized capital stock of AMCE consists of 45,000,000 shares of AMCE
Common Stock of which 6,804,296 shares were outstanding as of May 19, 1997
(12,945,639 after giving effect to the Merger), 30,000,000 shares of AMCE Class
B Stock of which 11,157,000 shares were outstanding as of May 19, 1997
(5,015,657 after giving effect to the Merger) and 10,000,000 shares of Preferred
Stock, par value 66 2/3 CENTS per share, of which 3,175,800 shares of
Convertible Preferred Stock were issued and outstanding as of May 19, 1997.
AMCE COMMON STOCK AND CLASS B STOCK
VOTING RIGHTS. The holders of AMCE Common Stock are entitled to one vote
per share and, except for the election of directors, vote together as a single
class with the AMCE Class B Stock, subject to the right to vote as a separate
class as required by law and on certain charter amendments affecting the number
of authorized shares of AMCE Common Stock or the par value or relative powers,
preferences or special rights thereof.
The holders of AMCE Class B Stock are entitled to ten votes per share and,
except for the election of directors, vote together with the AMCE Common Stock
as a single class, subject to the right to vote as a separate class as required
by law and on certain charter amendments affecting the number of authorized
shares of AMCE Class B Stock or the par value or relative powers, preferences or
special rights thereof.
Holders of AMCE Common Stock, voting separately as a class, with each share
having one vote for such purpose, generally have the right to elect 25% of the
AMCE Board. So long as any shares of AMCE Class B Stock remain outstanding,
holders of AMCE Class B Stock, voting separately as a single class, with each
share of AMCE Class B Stock having one vote for such purpose, generally have the
right to
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elect 75% of the AMCE Board (with any fraction of one-half or more rounded up).
If the total number of shares of AMCE Class B Stock outstanding becomes less
than 12 1/2% of the aggregate number of shares of AMCE Common Stock and AMCE
Class B Stock outstanding, then so long as shares of AMCE Common Stock are
listed on the AMEX, the 75% of the AMCE Board otherwise elected by holders of
AMCE Class B Stock will be elected by holders of AMCE Common Stock and AMCE
Class B Stock voting together as a single class, with each share of AMCE Common
Stock having one vote per share and each share of AMCE Class B Stock having ten
votes per share. In the event that no shares of AMCE Class B Stock remain
outstanding, the holders of AMCE Common Stock may elect all of the AMCE Board,
with each share having one vote for such purpose. Holders of AMCE Common Stock
and AMCE Class B Stock do not have cumulative voting rights in elections of
directors.
CONVERSION RIGHTS. Each holder of AMCE Class B Stock is entitled to convert
all or any portion of such holder's shares of AMCE Class B Stock into the same
number of shares of AMCE Common Stock. Upon approval of the holders of a
majority of the outstanding shares of AMCE Class B Stock, a pro rata percentage
of shares of AMCE Class B Stock of each holder of record will be automatically
converted into the same number of shares of AMCE Common Stock. AMCE's
Certificate of Incorporation requires AMCE to reserve and keep available a
sufficient number of authorized but unissued shares of AMCE Common Stock to
permit conversion of all outstanding shares of AMCE Class B Stock.
PREEMPTIVE RIGHTS. Holders of AMCE Common Stock and AMCE Class B Stock have
no preemptive rights.
DIVIDEND AND LIQUIDATION RIGHTS. Holders of AMCE Common Stock and AMCE
Class B Stock are entitled to receive, pro rata per share, such dividends as the
AMCE Board may from time to time declare out of funds legally available for the
payment of dividends, subject to the prior rights of holders of any then
outstanding preferred stock. Upon any liquidation, dissolution or winding-up of
AMCE, holders of AMCE Common Stock and AMCE Class B Stock are entitled to
receive, pro rata per share, any remaining assets of AMCE available for
distribution to stockholders, subject to the prior rights of holders of any then
outstanding preferred stock.
CERTAIN STOCK TRANSACTIONS. No stock dividend, stock split, subscription
right, combination, subdivision or exchange may be paid or issued by AMCE to
holders of AMCE Common Stock or AMCE Class B Stock except in shares of (or a
right to subscribe to shares of) the same class and only if such action is taken
at the same time with respect to the other class so that the number of shares of
each class outstanding (or subject to a subscription right) is increased or
decreased in like proportion. AMCE may not merge or consolidate unless the terms
and conditions of the merger or consolidation provide that holders of AMCE
Common Stock and AMCE Class B Stock then outstanding receive, pro rata per
share, consideration of equal value.
CONVERTIBLE PREFERRED STOCK
RANKING. The Convertible Preferred Stock ranks, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, senior to the AMCE
Common Stock and AMCE Class B Stock.
DIVIDENDS. Holders of shares of the Convertible Preferred Stock are
entitled to receive, when, as and if declared by the AMCE Board out of funds of
AMCE legally available for payment, cash dividends at an annual rate of $1.75
per share of Convertible Preferred Stock. Dividends on the Convertible Preferred
Stock are cumulative. No dividends may be paid or set apart for such payment on
the AMCE Common Stock or AMCE Class B Stock (except certain stock dividends) and
no shares of AMCE Common Stock or AMCE Class B Stock may be repurchased,
redeemed or otherwise retired, nor may funds be set apart for payment with
respect thereto, if full dividends for all prior periods have not been paid on
the Convertible Preferred Stock.
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LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of AMCE, before any payment or
distribution of assets is made on the AMCE Common Stock and AMCE Class B Stock,
the holders of the Convertible Preferred Stock shall receive a liquidation
preference of $25.00 per share and shall be entitled to receive all accrued and
unpaid dividends through the date of distribution.
VOTING RIGHTS. Except as indicated below or as expressly required by
applicable law, the holders of the Convertible Preferred Stock have no voting
rights. If the equivalent of six full quarterly dividends payable on the
Convertible Preferred Stock are in arrears, the authorized number of directors
of AMCE will be increased by two and the holders of the Convertible Preferred
Stock will be entitled to elect two directors until all dividends in arrears on
the Convertible Preferred Stock have been paid or declared and set apart for
payment. Upon payment or declaration and setting apart of funds for payment of
all such dividends in arrears, the term of office of each director elected will
immediately terminate and the number of directors constituting the entire AMCE
Board will be reduced by the number of directors elected by the holders of the
Convertible Preferred Stock.
The vote or consent of the holders of two-thirds of the outstanding shares
of Convertible Preferred Stock will be required to issue, authorize or increase
the authorized amount of, or issue or authorize or increase any obligation or
security convertible into or evidencing a right to purchase, any additional
class or series of securities senior to the Convertible Preferred Stock as to
dividend and liquidation rights. Furthermore, the vote or consent of the holders
of a majority of the outstanding shares of Convertible Preferred Stock will be
required to issue, authorize or increase the authorized amount of, or issue or
authorize or increase any obligation or security convertible into or evidencing
a right to purchase, any additional class or series of securities on parity with
the Convertible Preferred Stock as to dividend and liquidation rights.
The vote or consent of the holders of two-thirds of the outstanding shares
of Convertible Preferred Stock, voting as a class, will be required to authorize
an amendment to AMCE's Certificate of Incorporation, whether or not such holders
are entitled to vote thereon by the Certificate of Incorporation, if the
amendment would increase or decrease the aggregate number of authorized shares
of such class, increase the par value of the shares of such class, or alter or
change the powers, preferences or special rights of the shares of such class so
as to affect them adversely.
OPTIONAL REDEMPTION. Shares of Convertible Preferred Stock are redeemable
in whole or in part at the option of AMCE at redemption prices commencing at $26
per share (as of March 15, 1997) and declining by $.25 per share every 12 months
thereafter until March 15, 2001, when such price will become and remain $25 per
share. Shares called for redemption may be converted by the holders thereof
prior to the redemption date as discussed below under "--Conversion."
CONVERSION. Shares of the Convertible Preferred Stock are convertible at
any time at the option of the holder thereof into such number of whole shares of
AMCE Common Stock as is equal to the aggregate liquidation preference of the
shares of Convertible Preferred Stock surrendered for conversion divided by the
initial conversion price of $14.50. The present conversion ratio is 1.724 shares
of Common Stock for each share of Convertible Preferred Stock. Upon the
surrender of any shares of Convertible Preferred Stock for conversion, in lieu
of issuing the AMCE Common Stock issuable upon conversion of the Convertible
Preferred Stock, AMCE may, at its option, pay to the holder of such shares of
Convertible Preferred Stock an amount in cash equal to the then Market Value (as
defined below) of the number of shares of AMCE Common Stock into which such
shares of Convertible Preferred Stock are then convertible.
The initial conversion price per share of AMCE Common Stock is subject to
adjustment (under formulae set forth in the Certificate of Designations for the
Convertible Preferred Stock) in certain events, including: (i) the issuance of
AMCE Common Stock as a dividend or distribution on the AMCE Common
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Stock, (ii) certain subdivisions and combinations of the AMCE Common Stock,
(iii) the issuance to all holders of AMCE Common Stock of certain rights or
warrants to purchase AMCE Common Stock at a price per share less than the then
current market price per share and (iv) the distribution to all holders of AMCE
Common Stock of evidences of indebtedness of AMCE, shares of capital stock of
AMCE (other than AMCE Common Stock), cash or other assets (excluding those
rights, warrants, dividends and distributions referred to above and dividends
and distributions in connection with the liquidation, dissolution or winding-up
of AMCE or paid in cash out of the current or retained earnings of AMCE). No
adjustment of the conversion price will be made until cumulative adjustments
amount to one percent or more of the conversion price as last adjusted, but any
such adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
SPECIAL CONVERSION RIGHTS. The Convertible Preferred Stock has a special
conversion right that becomes effective upon the occurrence of certain types of
significant transactions affecting ownership or control of AMCE or the market
for AMCE Common Stock. The special conversion right is intended to provide
limited loss protection to holders of Convertible Preferred Stock in certain
circumstances, while not giving holders a veto power over significant
transactions affecting ownership or control of AMCE. Although the special
conversion right may render more costly or otherwise inhibit certain proposed
transactions, its purpose is not to inhibit or discourage takeovers or other
business combinations.
Each holder of the Convertible Preferred Stock will be entitled to a special
conversion right if a "Change of Control" or "Fundamental Change" (as defined
below) occurs. However, if the majority of the value of the consideration
received in a transaction by holders of AMCE Common Stock is "Marketable Stock"
(as defined below) or if the holders of "Voting" Stock (as defined below) of
AMCE hold a majority of the Voting Stock of AMCE's successor, the transaction
will not be a Fundamental Change, and holders of the Convertible Preferred Stock
will not have special conversion rights as the result of that transaction.
A special conversion right will permit a holder of the Convertible Preferred
Stock, at the holder's option during the 30-day period described in the
following paragraph, to convert all, but not less than all, of the holder's
Convertible Preferred Stock at a conversion price equal to the Special
Conversion Price (as defined below). A holder exercising a special conversion
right will receive AMCE Common Stock if a Change of Control occurs and, if a
Fundamental Change occurs, will receive the same consideration received for the
number of shares of AMCE Common Stock into which the holder's Convertible
Preferred Stock would have been convertible at the Special Conversion Price. In
either case, however, AMCE or its successor may, at its option, elect to pay the
holder cash equal to the Market Value of the number of shares of AMCE Common
Stock into which the holder's Convertible Preferred Stock is convertible at the
Special Conversion Price.
As used in this section, a "Change of Control" with respect to AMCE shall be
deemed to have occurred at the first time after the issuance of the Convertible
Preferred Stock that (i) a majority of the AMCE Board, over a two-year period,
is replaced from the directors who constituted the AMCE Board at the beginning
of such period, which replacement shall not have been approved by the AMCE Board
(or replacement directors approved by the AMCE Board), as constituted at the
beginning of such period, or (ii) a person or entity or group of persons or
entities acting in concert as a partnership or other group (other than the DI
affiliates (as defined below), any subsidiary of AMCE, any employee stock
purchase plan, stock option plan or other stock incentive plan or program,
retirement plan or automatic reinvestment plan or any substantially similar plan
of AMCE or any subsidiary of AMCE or any person holding securities of AMCE for
or pursuant to the terms of any such employee benefit plan) shall, as a result
of a tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, have become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of AMCE representing 50% or
more of the combined voting power of the then outstanding securities of AMCE
ordinarily (and apart from rights accruing under special circumstances) having
the right to vote in the election of directors.
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As used in this section, the term "DI affiliates" means (i) the Durwood
Family, (ii) any controlled affiliate of any member of the Durwood Family and
(iii) any trust for the benefit of one or more members of the Durwood Family
(whether or not any member of the Durwood Family is a trustee of such trust) and
no other person other than one or more charitable organizations.
As used in this section, a "Fundamental Change" with respect to AMCE means
(i) the occurrence of any transaction or event in connection with which (a)
66 2/3% or more of the outstanding AMCE Common Stock or (b) securities of AMCE
representing 50% or more of the combined voting power of the then outstanding
securities of AMCE ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors is
exchanged for, converted into, acquired for or constitutes solely the right to
receive cash, securities, property or other assets (whether by means of an
exchange offer, liquidation, tender offer, consolidation, merger, combination,
reclassification, recapitalization or otherwise) or (ii) the conveyance, sale,
lease, assignment, transfer or other disposal of all or substantially all of
AMCE's property, business or assets; provided, however, that a Fundamental
Change will not be deemed to have occurred with respect to either of the
following transactions or events: (a) any transaction or event in which more
than 50% (by value as determined in good faith by the AMCE Board) of the
consideration received by holders of AMCE Common Stock consists of Marketable
Stock or (b) any consolidation or merger of AMCE in which the holders of Voting
Stock of AMCE immediately prior to such transaction own, directly or indirectly,
50% or more of the Voting Stock of the sole surviving corporation (or of the
ultimate parent of such sole surviving corporation) outstanding at the time
immediately after such consolidation or merger. There is no established meaning
of what constitutes a sale of "all or substantially all" of a company's
property, business or assets. This uncertainty may make it difficult to
determine whether or not a Fundamental Change has occurred.
As used in this section, "Voting Stock" means, with respect to any person,
capital stock of such person, having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of such person (irrespective of whether or not at the time capital
stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency). Because holders of AMCE Class B
Stock presently are entitled to elect more than 50% of the AMCE Board, the AMCE
Class B Stock is presently the only Voting Stock of AMCE for purposes of this
definition.
As used in this section, "Special Conversion Price" means the higher of (i)
the Market Value of AMCE Common Stock or (ii) $9.80 per share (which amount
will, each time the conversion price is adjusted, be adjusted so that the ratio
of such amount to the conversion price, after giving effect to any such
adjustment, shall always be the same as the ratio of $9.80 to the initial
conversion price, without giving effect to any such adjustment). As used in this
section, "Market Value" of AMCE Common Stock or any other Marketable Stock is
the average of the last reported sales prices of the AMCE Common Stock or such
other Marketable Stock, as the case may be, for the five trading days ending on
the last trading day preceding the date of the Fundamental Change, Change of
Control or conversion, as applicable.
As used in this section, the term "Marketable Stock" means AMCE Common Stock
or common stock of any corporation that is the successor to all or substantially
all of the business or assets of AMCE as a result of a Fundamental Change or of
the ultimate parent of such successor, which is (or will, upon distribution
thereof, be) listed or quoted on the New York Stock Exchange, the AMEX, the
NASDAQ National Market or any similar system of automated dissemination of
quotations of securities prices in the United States.
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INFORMATION ABOUT DI
SELECTED FINANCIAL DATA
The following table sets forth selected data regarding DI's five most recent
fiscal years. The historical financial information for each of the fiscal years
specified below has been derived from DI's consolidated financial statements for
such periods. The unaudited pro forma financial information of DI as of and for
the fiscal year ended April 3, 1997 has been adjusted to give effect to the
Merger as set forth in the Notes to DI's Condensed Pro Forma Financial
Statements included elsewhere herein. Such pro forma information does not
purport to represent what DI's results of operations would have been had the
Merger occurred on the dates presented or to project DI's financial position or
results of operations for any future period. The historical financial data set
forth below is qualified in its entirety by reference to DI's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Proxy-Information Statement/Prospectus. The historical and pro forma financial
data set forth below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" of DI and DI's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Proxy-Information Statement/Prospectus.
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<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------------------------------------
APRIL 3, APRIL 3, MARCH 28, MARCH 30, MARCH 31, APRIL 1,
1997 1997 1996 1995 1994 1993
PROFORMA(1)(2)(4) ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(1)(2) ACTUAL(2)
----------------- ------------ ------------ ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Total revenues.................... $ 749,597 $ 749,597 $ 655,972 $ 563,347 $ 586,305 $ 403,785
Total cost of operations.......... 580,002 580,002 491,358 432,763 446,957 308,848
General and administrative........ 56,647 56,633 52,583 41,702 41,391 39,359
Depreciation and amortization..... 59,803 59,447 43,537 37,569 37,701 27,834
Estimated loss on future
disposition of assets............ -- -- -- -- -- 2,500
----------------- ------------ ------------ ------------ ------------ -----------
Operating income.................. 53,145 53,515 68,494 51,313 60,256 25,244
Interest expense.................. 22,022 23,042 29,805 36,814 37,093 32,040
Investment income................. 856 2,035 7,432 10,838 2,196 8,592
Gain (loss) on disposition of
assets........................... (84) (84) (220) 142 296 9,627
----------------- ------------ ------------ ------------ ------------ -----------
Earnings before income taxes,
extraordinary item and minority
interest......................... 31,895 32,424 45,901 25,195 25,655 11,423
Income tax provision.............. 12,900 12,910 19,360 (10,160) 4,808 3,700
----------------- ------------ ------------ ------------ ------------ -----------
Earnings before extraordinary item
and minority interest............ 18,995 19,514 26,541 35,355 20,847 7,723
Extraordinary item................ -- -- (19,350) -- -- (8,183)
----------------- ------------ ------------ ------------ ------------ -----------
Earnings (loss) before minority
interest......................... 18,995 19,514 7,191 35,355 20,847 (460)
Minority interest................. 9,084 9,084 7,168 11,559 773 66
----------------- ------------ ------------ ------------ ------------ -----------
Net earnings (loss)............... $ 9,911 $ 10,430 $ 23 $ 23,796 $ 20,074 $ (526)
----------------- ------------ ------------ ------------ ------------ -----------
----------------- ------------ ------------ ------------ ------------ -----------
Earnings (loss) per share before
extraordinary item:
Primary......................... $ 60.74 $ 63.96 $ 98.78 $ 146.65 $ 123.92 $ 32.81
Fully diluted................... $ 60.01 $ 63.24 $ 97.34 $ 131.32 $ 123.78 $ 32.81
Earnings (loss) per share:
Primary......................... $ 60.74 $ 63.96 $ .05 $ 146.65 $ 123.92 $ (4.86)
Fully diluted................... $ 60.01 $ 63.24 $ (.02) $ 131.32 $ 123.78 $ (4.86)
Common dividends per share........ $ -- $ -- $ -- $ -- $ -- $ --
Weighted average number of shares
outstanding
Primary......................... 161 161 161 161 161 161
Fully diluted................... 161 161 161 161 161 161
BALANCE SHEET DATA
Cash, equivalents and
investments...................... $ 24,715 $ 26,042 $ 12,888 $ 142,754 $ 152,979 $ 50,596
Total assets...................... 718,213 717,972 481,827 521,735 500,060 370,229
Total debt (including capital
lease obligations)............... 373,724 373,724 188,172 267,548 268,233 255,346
Minority interest................. 101,793 102,015 109,721 109,285 104,859 2,758
Stockholders' equity.............. 67,219 66,170 47,476 46,891 23,095 6,719
OTHER FINANCIAL DATA
EBITDA(3)......................... $ 112,948 $ 112,962 $ 112,031 $ 88,882 $ 97,957 $ 55,578
Cash flows provided by operating
activities....................... 134,074 126,218 89,998 38,453 65,132 27,144
Cash flows provided by (used in)
investing activities............. (283,917) (282,749) (66,998) 3,350 (111,047) 5,350
Cash flows provided by (used in)
financing activities............. 163,982 169,904 (83,722) (2,022) 55,257 (19,412)
Capital expenditures.............. 253,380 253,380 120,796 56,701 10,672 8,773
</TABLE>
93
<PAGE>
- --------------
(1) Fiscal 1997, 1996, 1995 and 1994 include the effects from the acquisition of
EEP on May 28, 1993.
(2) Fiscal 1997 consists of 53 weeks. All other years have 52 weeks.
(3) Represents operating income plus depreciation and amortization plus
estimated loss on future disposition of assets. EBITDA is a financial
measure commonly used in the motion picture exhibition industry and should
not be construed as an alternative to operating income (as determined in
accordance with GAAP). EBITDA as determined by the Company may not be
comparable to EBITDA as reported by other companies. In addition, EBITDA is
not intended to represent cash flow and does not represent the measure of
cash available for discretionary uses. EBITDA is a non-GAAP measure, but has
been used by lenders and stockholders as additional information for
estimating the Company's value and evaluating its ability to service debt.
(4) See the Company's Condensed Pro Forma Financial Statements and the Notes
thereto included elsewhere herein.
94
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
DI is principally a holding company. Its primary subsidiary is AMCE which,
through its subsidiaries, is principally involved in the theatrical exhibition
industry throughout the United States and in Japan and Portugal. AMCE is also
involved in the business of providing on-screen advertising and other services
to AMC and other theatre circuits through a wholly-owned subsidiary, National
Cinema Network, Inc. Delta, DI's only subsidiary other than the Company, is
engaged in real estate and investment activities.
As a result of the commencement of international operations during fiscal
1997, DI is disaggregating its domestic and international exhibition operations
and DI's on-screen advertising and other business in order to provide more
information as to revenues, cost of operations, depreciation and amortization,
and general and administrative expenses as set forth in the table below for the
fifty-three and fifty-two periods ended April 3, 1997 and March 28, 1996.
<TABLE>
<CAPTION>
YEARS (53/52 WEEKS) ENDED
----------------------------------------------
APRIL 3, 1997 MARCH 28, 1996 % CHANGE
------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Domestic
Admissions.................................. $ 479,629 $ 431,361 11.2%
Concessions................................. 222,945 196,645 13.4
Other....................................... 15,763 15,096 4.4
------------- --------------- -----
718,337 643,102 11.7
International
Admissions.................................. 13,322 -- --
Concessions................................. 2,222 -- --
Other....................................... 49 -- --
------------- --------------- -----
15,593 -- --
On-screen advertising and other................. 15,667 12,870 21.7
------------- --------------- -----
Total revenues............................ $ 749,597 $ 655,972 14.3%
------------- --------------- -----
------------- --------------- -----
COST OF OPERATIONS
Domestic
Film rentals................................ $ 239,480 $ 215,099 11.3%
Concession costs............................ 36,045 30,417 18.5
Rent........................................ 75,116 64,813 15.9
Other....................................... 198,555 172,087 15.4
------------- --------------- -----
549,196 482,416 13.8
International
Film rentals................................ 7,719 -- --
Concession costs............................ 703 -- --
Rent........................................ 4,945 -- --
Other....................................... 5,377 -- --
------------- --------------- -----
18,744 -- --
On-screen advertising and other................. 12,062 8,942 34.9
------------- --------------- -----
Total cost of operations.................. $ 580,002 $ 491,358 18.0%
------------- --------------- -----
------------- --------------- -----
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
YEARS (53/52 WEEKS) ENDED
----------------------------------------------
APRIL 3, 1997 MARCH 28, 1996 % CHANGE
------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
GENERAL AND ADMINISTRATIVE
Domestic and corporate........................ $ 45,544 $ 44,724 1.8%
International................................. 6,864 4,550 50.9
On-screen advertising and other............... 4,225 3,309 27.7
------------- --------------- -----
Total general and administrative.......... $ 56,633 $ 52,583 7.7%
------------- --------------- -----
------------- --------------- -----
DEPRECIATION AND AMORTIZATION
Domestic and corporate........................ $ 56,267 $ 42,201 33.3%
International................................. 1,436 -- --
On-screen advertising and other............... 1,744 1,336 30.5
------------- --------------- -----
Total depreciation and amortization....... $ 59,447 $ 43,537 36.5%
------------- --------------- -----
------------- --------------- -----
</TABLE>
YEARS (53/52 WEEKS) ENDED APRIL 3, 1997 AND MARCH 28, 1996
REVENUES. Total revenues increased 14.3%, or $93,625,000, during the year
(53 weeks) ended April 3, 1997 compared to the year (52 weeks) ended March 28,
1996.
Total domestic revenues increased 11.7%, or $75,235,000, from the prior
year. Admissions revenues increased 11.2%, or $48,268,000, due to a 6.4%
increase in attendance, which contributed $27,658,000 of the increase, and a
4.7% increase in average ticket prices, which contributed $20,610,000 of the
increase. The increase in attendance was due primarily to the Company's megaplex
theatres (theatres having at least 14 screens with predominately stadium-style
seating). Attendance at megaplex theatres increased during the year as a result
of the addition of 12 new megaplex theatres with 248 screens and from the
operation for a full fiscal year of the Company's remaining five domestic
megaplex theatres with 98 screens that were opened in fiscal 1996. The increase
in attendance from megaplex theatres was partially offset by a decrease in
attendance at multiplex theatres (theatres generally without stadium-style
seating and having less than 14 screens) and the closure or sale of 15 theatres
with 76 screens. Attendance at multiplex theatres decreased as a result of
competitive factors. Also, during the first nine months of the fiscal year,
attendance at all theatres was impacted by film product from the Company's key
suppliers which did not deliver the results achieved in the prior fiscal year.
The increase in average ticket prices is due to price increases and the growing
number of megaplexes in the Company's circuit, which yield higher average ticket
prices than multiplexes. Concessions revenues at domestic theatres increased by
13.4%, or $26,300,000, due to a 6.9% increase in average concessions per patron,
which contributed $13,692,000 of the increase, and the increase in total
attendance, which contributed $12,608,000 of the increase. The increase in
average concessions per patron is attributable to the introduction of new
concessions products and the increasing number of megaplexes in the Company's
circuit, where concession spending per patron is higher than multiplex theatres.
Total international revenues were the result of admissions and concessions
revenues from the Company's two international theatres, the Canal City 13
located in Fukuoka, Japan and the Arrabida 20 located in Porto, Portugal, which
opened during the first and third quarters of fiscal 1997, respectively.
Admissions and concessions revenues accounted for 85% and 14% of total
international revenues, respectively. The Company's initial attendance at the
Canal City 13 was negatively impacted by film distributors in Japan who
restricted the Company's ability to obtain film product until approximately two
weeks after its competitors had received it. This delay in releasing films to
the Company has generally been eliminated.
On-screen advertising and other revenues increased 21.7%, or $2,797,000, due
primarily to an increase in the number of screens served by the Company's
on-screen advertising business, a result of its expansion program.
96
<PAGE>
COST OF OPERATIONS. Total cost of operations increased 18.0%, or
$88,644,000, during the year (53 weeks) ended April 3, 1997 compared to the year
(52 weeks) ended March 28, 1996.
Total domestic cost of operations increased 13.8%, or $66,780,000, from the
prior year. Film rentals expense increased 11.3%, or $24,381,000, due to higher
admissions revenues. As a percentage of admissions revenues, film rentals
expense was 49.9% in each year. The 18.5%, or $5,628,000, increase in concession
costs is attributable to the increase in concessions revenues. As a percentage
of concessions revenues, concession costs increased from 15.5% to 16.2% due
primarily to increases in raw popcorn costs and the lower margins on new
concessions products. Rent expense increased 15.9%, or $10,303,000, due to the
higher number of screens in operation. Other cost of operations increased 15.4%,
or $26,468,000, from the prior year due to the higher number of screens in
operation, $1,825,000 of advertising expenses associated with the opening of new
theatres and higher expenses associated with the Company's theatre management
development program.
Total international cost of operations were the result of expenses
associated with the Company's new theatres in Japan and Portugal. As a
percentage of admissions revenues, film rentals expense was 57.9% primarily
because film rentals in Japan are generally higher than those domestically.
Concession costs were 31.6% of concessions revenues due to the high procurement
costs of concessions products sourced from the United States. As a percentage of
total revenues, rent expense was 31.7% as a result of low attendance and
admissions revenues and the higher real estate costs in Japan.
On-screen advertising and other cost of operations increased 34.9%, or
$3,120,000, as a result of the higher number of screens served and related
start-up expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
7.7%, or $4,050,000, during the year (53 weeks) ended April 3, 1997.
Domestic and corporate general and administrative expenses increased 1.8%,
or $820,000, primarily due to increases in costs associated with the Company's
development of theatres and increased pension and retirement expenses of
$1,992,000. These increases were partially offset by a decrease of $3,500,000 in
the current year's bonus expense and severance payments of $967,000 for two
former executive officers of AMCE made during the prior year.
International general and administrative expenses increased 50.9%, or
$2,314,000, due primarily to increases in costs associated with the Company's
development of new theatres and other expenses to support the Company's
international operations and expansion plan.
General and administrative expenses associated with on-screen advertising
and other increased 27.7%, or $916,000, due primarily to an increase in payroll
and related costs to support the expansion program at the Company's on-screen
advertising business.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
36.5%, or $15,910,000, during the year (53 weeks) ended April 3, 1997. This
increase was caused by an increase in employed theatre assets resulting from the
Company's expansion plan and an impairment loss of $7,231,000 due to expected
declines in future cash flows of certain theatres.
OPERATING INCOME. Operating income decreased 21.9%, or $14,979,000, during
the year (53 weeks) ended April 3, 1997. The decrease in operating income is
attributable to the attendance and revenue decline at multiplex theatres and an
increase in domestic and corporate general and administrative expenses of
$1,820,000, the effects of which were partially offset by an increase in
attendance and revenues at megaplex theatres. Additionally, operating income was
reduced by operating losses of $4,587,000 from the Company's international
theatres in Japan and Portugal, an increase in international general and
administrative expenses of $2,314,000 and an increase in operating losses of
$1,647,000 from the Company's on-screen advertising business.
97
<PAGE>
INTEREST EXPENSE. Interest expense decreased 22.7%, or $6,763,000, during
the year (53 weeks) ended April 3, 1997 compared to the prior year. The decrease
in interest expense resulted from lower rates under the Company's $425 million
credit facility (the "Credit Facility"), which was partially offset by an
increase in average outstanding borrowings related to the Company's expansion
plan.
INVESTMENT INCOME. Investment income decreased 72.6%, or $5,397,000, during
the year (53 weeks) ended April 3, 1997 due to a decrease in outstanding cash
and investments compared to the prior year. Cash and investments decreased as a
result of AMCE's redemption of substantially all of its 11 7/8% Senior Notes due
2000 ("Senior Notes") and 12 5/8% Senior Subordinated Notes due 2002 ("12 5/8%
Senior Subordinated Notes") on December 28, 1995. This decrease in investment
income was partially offset by a gain of $1,094,000 on the sale of investments
in the current year.
EARNINGS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND MINORITY
INTEREST. Earnings before income taxes, extraordinary item and minority
interest decreased by 29.4%, or $13,477,000, during the year (53 weeks) ended
April 3, 1997 due primarily to the $14,979,000 decrease in operating income.
NET EARNINGS. Earnings before extraordinary item and minority interest
decreased $7,027,000 during the year (53 weeks) ended April 3, 1997 to
$19,514,000 from $26,541,000 in the prior year. Net earnings for the period were
$10,430,000 compared to $23,000 in the prior year, which included an
extraordinary item (a loss of $19,350,000 in connection with the early
extinguishment of debt). Net earnings before extraordinary item per share was
$63.96 compared to $98.78 for the prior year. Net earnings per share was $63.96
compared to $.05 for the prior year.
<TABLE>
<CAPTION>
YEARS (52 WEEKS ENDED)
------------------------------------------------------
MARCH 28, % OF TOTAL MARCH 30, % OF TOTAL
1996 REVENUES 1995 REVENUES
----------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
REVENUES
Admissions................................ $ 431,361 66% $ 371,145 66%
Concessions............................... 196,645 30 169,120 30
Other..................................... 27,966 4 23,082 4
----------- ----- ----------- -----
Total..................................... $ 655,972 100% $ 563,347 100%
----------- ----- ----------- -----
----------- ----- ----------- -----
COST OF OPERATIONS
Film rentals.............................. $ 215,099 33% $ 182,669 33%
Concession costs.......................... 30,417 5 24,383 4
Rent...................................... 64,813 10 60,076 11
Other..................................... 181,029 27 165,635 29
----------- ----- ----------- -----
Total..................................... $ 491,358 75% $ 432,763 77%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
YEARS (52 WEEKS) ENDED MARCH 28, 1996 AND MARCH 30, 1995
REVENUES. Total revenues for the year (52 weeks) ended March 28, 1996
increased 16.4%, or $92,625,000, to $655,972,000 compared to $563,347,000 for
the year (52 weeks) ended March 30, 1995. Admissions revenues increased 16.2%,
or $60,216,000, due to a 11.1% increase in attendance, which contributed
$41,151,000 of the increase, and a 4.4% increase in average ticket prices, which
contributed $19,065,000 of the increase. The increase in attendance resulted
from the popularity of films licensed during fiscal 1996 and the net addition of
89 screens since fiscal 1995 at new and higher performing locations. Attendance
during the prior year was impacted by a dispute with a major distributor over
film licensing terms, which resulted in the Company's licensing that
distributor's films for a smaller number of its theatres than it otherwise would
have. In fiscal 1996, the Company licensed that distributor's films for what it
considers to be a more acceptable number of the Company's theatres. Concessions
revenues
98
<PAGE>
increased by 16.3%, or $27,575,000, due to the increase in total attendance
which caused an increase of $18,752,000, and a 6.9% increase in average
concessions per patron, which contributed $8,773,000 of the increase.
COST OF OPERATIONS. Total cost of operations increased 13.5%, or
$58,595,000, in fiscal 1996 to $491,358,000 from $432,763,000 in fiscal 1995. As
a percentage of total revenues, cost of operations was 75% and 77% in fiscal
1996 and 1995, respectively. Film rentals expense increased 17.8%, or
$32,430,000, in fiscal 1996 due to higher attendance levels, which contributed
$29,637,000 of the increase, and an increase in the percentage of admissions
paid to film distributors, which caused an increase of $2,793,000. Concessions
costs, rent and other costs of operations increased 10.5% from the prior year
due to increases in payroll of $6,641,000, concession costs of $6,034,000, rent
of $4,737,000 and other theatre operating expenses associated with the increase
in admissions and concessions revenues and from the higher number of screens in
operation.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
26.1%, or $10,881,000, to $52,583,000 in fiscal 1996 from $41,702,000 in fiscal
1995. The increase in general and administrative expenses is primarily
attributable to payroll and other costs associated with the Company's
development of theatres in the United States and certain international markets,
additional bonus expense of $3,074,000 related to improved profitability of the
Company and severance payments of $967,000 for two former executive officers. As
a percentage of total revenues, general and administrative expenses increased to
8.0% in fiscal 1996 from 7.4% in fiscal 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
15.9%, or $5,968,000, to $43,537,000 in fiscal 1996 from $37,569,000 in fiscal
1995. This increase resulted primarily from the reduction, effective December
30, 1994, in the estimated lives of lease rights and location premiums on
certain smaller theatres to correspond to the base terms of the theatre leases,
an increase in employed theatre assets and the recognition of an impairment loss
of $1,799,000 in connection with the adoption of Statement of Financial
Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
INTEREST EXPENSE. Interest expense decreased 19.0%, or $7,009,000, to
$29,805,000 in fiscal 1996 from $36,814,000 in fiscal 1995. The decrease in
interest expense resulted from lower interest rates under the Company's Credit
Facility as compared to the rates under the Senior Notes and 12 5/8% Senior
Subordinated Notes.
INVESTMENT INCOME. Investment income decreased 31.4%, or $3,406,000, to
$7,432,000 in fiscal 1996 from $10,838,000 in fiscal 1995 due primarily to a net
gain of $1,407,000 recorded in fiscal 1995 from the sales of stock of TPI
Enterprises, Inc. and AmeriHealth, Inc. and a decrease of $1,599,000 in interest
income in fiscal 1996.
EARNINGS BEFORE INCOME TAXES, EXTRAORDINARY ITEM AND MINORITY
INTEREST. Earnings before income taxes, extraordinary item and minority
interest increased 82.2%, or $20,706,000, to $45,901,000 in fiscal 1996 from
$24,978,000 in fiscal 1995. The Company recorded a $19,350,000 extraordinary
loss, net of income tax benefit of $13,400,000, related to extinguishment of
debt in fiscal 1996.
NET EARNINGS. For the year (52 weeks) ended March 28, 1996, the Company
recorded net earnings of $23,000, a $23,773,000 decrease from net earnings of
$23,796,000 for the year (52 weeks) ended March 30, 1995. Net earnings per share
was $.05 in fiscal 1996 compared to $146.65 in fiscal 1995. The decrease in net
earnings was impacted by an extraordinary loss of $19,350,000 incurred as a
result of the Company's repurchase of Senior Notes and 12 5/8% Senior
Subordinated Notes in fiscal 1996. Also, in fiscal 1996 the Company had a tax
expense of $19,360,000, as opposed to a tax benefit of $10,160,000 in fiscal
1995. The fiscal 1995 tax benefit resulted from a $19,028,000 reduction in the
deferred tax valuation allowance established under Statement of Financial
Accounting Standards
99
<PAGE>
No. 109, ACCOUNTING FOR INCOME TAXES. Earnings per share before extraordinary
item was $98.78 in fiscal 1996 compared to $146.65 in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The forward-looking statements included in this section, which reflect
management's best judgment based on factors currently known, involve risks and
uncertainties. Actual results could differ materially from those anticipated in
the forward-looking statements included herein as a result of a number of
factors, including but not limited to the Company's ability to enter into
various financing programs, competition from other companies, changes in
economic climate, increase in demand for real estate, demographic changes,
changes in real estate, zoning and tax laws, the performance of films licensed
by the Company and other risks and uncertainties.
The Company's revenues are collected in cash, principally through box office
admissions and theatre concessions sales. The Company has an operating "float"
which partially finances its operations and which generally permits the Company
to maintain a smaller amount of working capital capacity. This float exists
because admissions revenues are received in cash, while exhibition costs
(primarily film rentals) are ordinarily paid to distributors from 30 to 45 days
following receipt of box office admission revenues. The Company is only
occasionally required to make advance payments or non-refundable guarantees of
film rentals. Film distributors generally release films which they anticipate
will be the most successful during the summer and holiday seasons. Consequently,
the Company typically generates higher revenues during such periods. Cash flows
from operating activities, as reflected in the Consolidated Statements of Cash
Flows, was $126,218,000, $89,998,000 and $38,453,000 in fiscal years 1997, 1996
and 1995, respectively.
During fiscal 1997, the Company had capital expenditures of $253,380,000
primarily for the development of new theatres and the addition of screens at
existing locations. The Company has continued its expansion plan by opening 14
leased theatres with 244 screens, two owned theatres with 46 screens and one
theatre with 24 screens leased pursuant to a ground lease. Included in these
openings is the Company's first theatre in Japan, the Canal City 13 in Fukuoka,
which opened in April 1996, and the Company's first theatre in Portugal, the
Arrabida 20 in Porto, which opened in late December 1996. In addition, the
Company closed or sold 14 leased theatres with 72 screens and one owned theatre
with four screens, resulting in a circuit total of 1,957 screens in 228 theatres
as of April 3, 1997.
The Company has plans to open approximately 700 screens during fiscal 1998.
If these planned screens are opened as scheduled, the Company estimates that
total capital expenditures for fiscal 1998 will aggregate approximately $425
million. Included in these amounts are assets which the Company may place into
sale/leaseback or other comparable financing programs which will have the effect
of reducing the Company's net cash outlays. As of April 3, 1997, the Company had
under construction 15 new leased theatre locations totaling 362 screens, four
new owned theatres with 104 screens, two theatres with 48 screens leased
pursuant to a ground lease and additions to four existing theatres for 44 new
screens. All of these theatres and screens will be located in the United States.
On December 28, 1995, AMCE completed the redemption of substantially all of
its Senior Notes and 12 5/8% Senior Subordinated Notes. AMCE redeemed
$99,383,000 of the Senior Notes at a total price of $1,117.90 per $1,000
principal amount and $95,096,000 of the 12 5/8% Senior Subordinated Notes at a
total price of $1,144.95 per $1,000 principal amount. AMCE utilized cash and
investments along with borrowings of $130,000,000 on a credit facility to redeem
the Senior Notes and the 12 5/8% Senior Subordinated Notes.
As a part of the refinancing plan, the Company entered into the Credit
Facility, which was subsequently amended and restated as of April 10, 1997. The
Credit Facility permits borrowings at interest rates based on either the bank's
base rate or LIBOR and requires an annual commitment fee based on margin ratios
that could result in a rate of .1875% to .375% on the unused portion of the
commitment.
100
<PAGE>
The Credit Facility matures in 2004. The commitment thereunder will reduce by
$25 million on each of December 31, 2002, March 31, 2003, June 30, 2003 and
September 30, 2003 and by $50 million on December 31, 2003. As of April 3, 1997,
the Company had outstanding borrowings of $110,000,000 under the Credit Facility
at an average interest rate of 6.4% per annum.
Covenants of the Credit Facility, as amended and restated, impose
limitations on the incurrence of additional indebtedness, creation of liens,
change of control, transactions with affiliates, mergers, investments,
guaranties, asset sales, business activities and pledges. The Company is
required to maintain (i) a maximum net indebtedness to consolidated EBITDA
ratio, as defined in the Credit Facility (generally, the ratio of the principal
amount of outstanding indebtedness (less cash and equivalents) to earnings
before interest, taxes, depreciation, amortization and other noncash charges),
of 5.25 to 1 during the first four years of the Credit Facility, a ratio of 4.75
to 1 during the fifth year, a ratio of 4.25 to 1 in the sixth year and a ratio
of 4.0 to 1 thereafter, and a (ii) minimum cash flow coverage ratio, as defined
in the Credit Facility (generally, the ratio of consolidated EBITDA for the most
recent four quarters to the sum of (A) consolidated interest expense for such
period, (B) amounts paid as dividends, for the optional repurchase or redemption
of subordinated debt or capital stock, or with respect to the principal amount
of capital lease obligations during such period, plus (C) the current portion of
debt with an original maturity exceeding one year), of 1.40 to 1. If the Company
prepays, defeases or repurchases more than $10 million of the Notes (as defined
below) or any other subordinated debt incurred after April 10,1997, it is
required to maintain a maximum net senior indebtedness to EBITDA ratio, as
defined in the Credit Facility, of 4.5 to 1 during the first four years of the
Credit Facility and 4.0 to 1 thereafter. As of April 3, 1997, the Company was in
compliance with all financial covenants relating to the Credit Facility.
Prior to its April 10, 1997 amendment and restatement, the Credit Facility
contained a covenant that generally limited the Company's capital expenditures.
This covenant has been eliminated.
On March 19, 1997, the Company sold $200 million aggregate principal amount
of its Notes in the Note Offering. Net proceeds from the issuance of the Notes
(approximately $193.8 million) were used to reduce borrowings under the Credit
Facility. Amounts repaid under the Credit Facility will again be available for
borrowing thereunder, and the Company intends to utilize this increased
availability to continue with its current expansion program.
The Notes bear interest at the rate of 9 1/2% per annum, payable in March
and September. The Notes are redeemable at the option of the Company, in whole
or in part, at any time on or after March 15, 2002 at 104.75% of the principal
amount thereof, declining ratably to 100% of the principal amount thereof on or
after March 15, 2006, plus in each case interest accrued to the redemption date.
Upon a change of control (as defined in the Note Indenture), each holder of the
Notes will have the right to require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase. The Notes are subordinated to all
existing and future senior indebtedness (as defined in the Note Indenture) of
the Company.
The Company has agreed to use its best efforts to (i) file and cause to
become effective by August 16, 1997, a registration statement relating to a
registered offer to exchange the Notes (the "Exchange Offer") for notes of AMCE
with terms identical in all material respects to the Notes and (ii) cause the
Exchange Offer to be consummated by September 15, 1997. If the Exchange Offer
registration statement is not declared effective by August 16, 1997, the Company
has agreed that in lieu thereof it will use its best efforts to cause to become
effective by September 15, 1997 a shelf registration statement with respect to
the Notes. In the event that either (a) the Exchange Offer registration
statement is not filed on or prior to June 17, 1997, (b) the Exchange Offer
registration statement is not declared effective on or prior to August 16, 1997
or (c) the Exchange Offer is not consummated or a shelf registration statement,
with respect to the Notes, is not declared effective on or prior to September
15, 1997, the interest rate borne by the Notes will increase by 0.50% per annum
following June 17, 1997 in the case of clause (a) above, following August 16,
1997 in the case of clause (b) above and following
101
<PAGE>
September 15, 1997 in the case of clause (c) above. The aggregate amount of such
increase will in no event exceed 1.00% per annum. Upon (x) the filing of the
Exchange Offer registration statement after June 17, 1997, (y) the effectiveness
of the Exchange Offer registration statement after August 16, 1997 or (z) the
consummation of the Exchange Offer or the effectiveness of a shelf registration
statement, as the case may be, after September 15, 1997, the interest rate borne
by the Notes from the date of filing, effectiveness or consummation, as the case
may be, will be reduced to 9 1/2%. The Exchange Offer registration statement was
filed on June 13, 1997.
The Note Indenture contains certain covenants that, among other things,
restrict the ability of the Company and its subsidiaries to: incur additional
indebtedness; pay dividends or make distributions in respect of their capital
stock; purchase or redeem capital stock; enter into transactions with
stockholders or certain affiliates; or consolidate, merge or sell all or
substantially all of the Company's assets, other than in certain transactions
between the Company and one or more of its wholly-owned subsidiaries and other
than the Merger. All of these limitations are subject to a number of important
qualifications. The Note Indenture does not impose any limitation on the
incurrence by the Company and its subsidiaries of liabilities that are not
considered "Indebtedness" under the Note Indenture, such as those that would be
incurred under certain sale/leaseback transactions; nor does the Note Indenture
impose any limitation on the amount of liabilities incurred by subsidiaries, if
any, that might be designated as Unrestricted Subsidiaries (as defined therein).
Furthermore, there are no restrictions on the ability of the Company and its
subsidiaries to make advances to, or invest in, other entities (including
unaffiliated entities) and no restrictions on the ability of the Company's
subsidiaries to enter into agreements restricting their ability to pay dividends
or otherwise transfer funds to the Company. If the Notes attain "investment
grade status" (as defined in the Note Indenture), the covenants in the Note
Indenture limiting the Company's ability to incur indebtedness, pay dividends,
acquire stock or engage in transactions with affiliates will cease to apply.
The Company believes that cash generated from operations, existing cash and
equivalents, amounts received from sale/leaseback or other comparable financing
programs which the Company is currently pursuing and the unused commitment
amount under its Credit Facility will be sufficient to fund operations and
planned capital expenditures through the end of fiscal 1998.
During the year (53 weeks) ended April 3, 1997, various holders of AMCE's
$1.75 Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock")
converted 696,400 shares into 1,200,589 shares of AMCE Common Stock at a
conversion rate of 1.724 shares of Common Stock for each share of Convertible
Preferred Stock. Convertible Preferred Stock dividend payments decreased 14.4%,
or $1,007,000, to $5,993,000 for the year (53 weeks) ended April 3, 1997 from
$7,000,000 in the prior year as a result of the conversions. Future conversions
will continue to reduce the amount of dividends paid by the Company and increase
the number of shares of Common Stock outstanding.
The Convertible Preferred Stock is redeemable in whole or in part, at the
option of AMCE, at a current redemption price of $26 per share, declining by
$.25 per share on March 15 of each year until March 15, 2001, when such price
will become fixed at $25. Shares called for redemption may be converted by the
holders thereof prior to the redemption date.
On January 10, 1997, the Company purchased the 20% minority interest in the
common stock of AMC Philadelphia, Inc., an 80% owned subsidiary, for $7,400,000
in cash. The Company utilized borrowings on its Credit Facility to finance the
purchase. Management does not believe that the acquisition will have a
significant effect on the Company's results of operations.
OTHER
The Board of Directors has approved the Merger Agreement providing for the
Merger of DI and AMCE with AMCE remaining as the surviving entity. The Merger
has been sought by members of the Durwood family so that they may hold their
interests in AMCE directly instead of indirectly through DI and
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AAE. In the Merger, stockholders of DI would exchange their shares of DI stock
for shares of AMCE's stock.
Prior to the effective time of the Merger, all of DI's assets (other than
its equity interest in AMCE) will be contributed to Delta Properties, Inc.
("Delta"), a subsidiary of the Company. In addition, DI's other subsidiaries,
other than AMCE and its subsidiaries, have been merged into Delta and Delta has
agreed to assume DI's liabilities. Delta's stock will be distributed to DI's
shareholders so that at the effective time of the Merger DI's sole assets will
consist of stock of AMCE and its beneficial interest in certain tax credits and
operating loss carryforwards.
If the merger occurs, the Company will be responsible for paying all of its
cost in connection with the merger; the aggregate merger costs for both the
Company and AMCE are estimated to be approximately $2 million.
The Company is in the process of modifying its computer applications to
ensure their continuing functionality for the "Year 2000" and beyond. At the
present time the Company estimates that expenses related to this project will
total approximately $1.5 million to $2.0 million. These total estimated expenses
are expected to be incurred during fiscal years 1998 and 1999.
Congress passed legislation to increase the federal minimum hourly wage paid
to hourly wage employees over a two-year period. This legislation will increase
the aggregate average hourly wage paid by the Company. The Company intends to
relieve the cost pressure from the minimum wage increase by pursuing better
labor and operating efficiencies as well as some price adjustments for theatres
in certain markets. Such legislation is not expected to have a material adverse
effect on the Company's results of operations, liquidity or financial condition.
IMPACT OF INFLATION
Historically, the principal impact of inflation and changing prices upon the
Company has been to increase the costs of the construction of new theatres, the
purchase of theatre equipment and the utility and labor costs incurred in
connection with continuing theatre operations. Film rentals expense, the largest
cost of operations of the Company, is customarily paid as a percentage of
admissions revenues and hence, while the film rentals expense may increase on an
absolute basis, the percentage of admissions revenues represented by such
expense is not directly affected by inflation. Except as set forth above,
inflation and changing prices have not had a significant impact on the Company's
total revenues and results of operations.
RECENTLY ISSUED FINANCIAL ACCOUNTING PRONOUNCEMENTS
During fiscal 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. The Statement allows companies to measure compensation cost in
connection with employee stock compensation plans using a fair value based
method or to continue to use an intrinsic value based method to account for
stock options and awards. The Company has chosen to continue using the intrinsic
value based method while adopting the disclosure-only provisions of the
pronouncement.
During fiscal 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER
SHARE. SFAS 128 eliminates the presentation of primary and fully diluted
earnings per share ("EPS") and requires presentation of basic and diluted EPS.
The principal difference between primary and basic EPS is that common stock
equivalents are not included with the weighted average number of shares
outstanding used in the computation of basic EPS. Diluted EPS is computed
similarly to fully diluted EPS. SFAS 128 is effective for periods ending after
December 15, 1997, including interim periods, and requires restatement of all
prior-period EPS data.
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Early adoption is not permitted. Management has not yet determined the impact
that this statement will have on the Company.
BUSINESS OF DI
DI was formed in 1947 and originally was primarily engaged directly in the
ownership and operation of motion picture theatres. Following AMC's formation in
1968, DI and its subsidiaries developed real estate, leased theatre equipment
and other property to AMC, sold concession items to AMC and engaged in various
investment activities. During the past five years, DI has acted primarily as a
holding company for Mr. Stanley H. Durwood and the other Durwood Family
Stockholders for the stock of AMCE. DI's other assets as of April 3, 1997
consisted primarily of cash and equivalents, promissory notes from the Durwood
Children and a former officer of the Company, life insurance policies on the
life of Mr. Stanley H. Durwood and stock of Delta.
The Merger Agreement provides that at the Effective Time DI will have no
right, title or interest in any property or assets other than stock of the
Company. Prior to the Effective Time of the Merger, all of DI's assets, other
than stock of AMCE, will be contributed to Delta. DI's other subsidiaries, other
than AMCE and its subsidiaries, have been merged into Delta and Delta has agreed
to assume DI liabilities. Delta's shares will be distributed to DI's
shareholders prior to the Effective Time so that at the Effective Time, DI's
sole assets will consist of shares of stock of AMCE and its beneficial interest
in certain tax credits and operating loss carryforwards.
SECURITY OWNERSHIP OF DI
The following table sets forth certain information as of April 3, 1997 with
respect to beneficial ownership of DI's capital stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------- -------------------------- ------------------- --------------------
<S> <C> <C> <C>
Class A............ Stanley H. Durwood 119,500(1) 99.6%
Class A............ Harvard College 500 .4%
Class B............ Edward D. Durwood 40,784(2) 100%
</TABLE>
- --------------
(1) These shares are held in a revocable inter vivos trust and a revocable
voting trust established by Mr. Stanley H. Durwood for his benefit.
(2) These shares are held by AAE, a Missouri limited partnership of which Mr.
Stanley H. Durwood is the preferred limited partner and the Durwood Children
are the general partners. See "The Merger-- General Effects of the Merger."
Mr. Edward D. Durwood, as managing general partner, has voting authority
over these shares.
MARKET FOR AND DIVIDENDS ON DI STOCK
DI's stock has never traded. DI has not paid a dividend on its shares of
stock in the last five years. There are two record holders of DI Class A Stock
(Harvard College and the 1992 Trust) and one record holder of DI Class B Stock
(AAE). Prior to the Merger, AAE will be liquidated so that at the Effective Time
of the Merger, there will be seven record holders of DI Class B Stock (Mr.
Stanley H. Durwood and the Durwood Children).
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COMPARISON OF RIGHTS OF HOLDERS
OF AMCE COMMON AND CLASS B STOCK AND DI STOCK
AMCE and DI are incorporated in the States of Delaware and Missouri,
respectively. The rights of the shareholders of DI are currently governed by
Missouri law (primarily GBCLM) and by DI's Articles of Incorporation, as amended
("DI's Articles of Incorporation"), and its Bylaws, as amended ("DI's Bylaws").
The shareholders of DI will, upon consummation of the Merger, become
stockholders of AMCE, and their rights will be governed by Delaware law
(primarily the DGCL) and by AMCE's Certificate of Incorporation and its Bylaws,
as amended ("AMCE's Bylaws"). A summary of certain material differences between
the rights of holders of AMCE Common Stock and AMCE Class B Stock and the rights
of holders of DI stock is set forth below.
AUTHORIZED AND ISSUED STOCK
As of April 3, 1997, DI had 200,000 shares of stock authorized, consisting
of 150,000 shares of DI Class A Stock, par value $100 per share, of which
120,000 shares were issued and outstanding, and 50,000 shares of DI Class B
Stock, par value $100 per share, of which 40,784 shares were issued and
outstanding.
As of April 3, 1997, AMCE had 85,000,000 shares of stock authorized,
consisting of 45,000,000 shares of AMCE Common Stock, of which 6,583,969 shares
were issued and outstanding; 30,000,000 shares of AMCE Class B Stock, of which
11,157,000 shares were issued and outstanding; and 10,000,000 shares of
Preferred Stock, of which 3,303,600 shares of Convertible Preferred Stock were
issued and outstanding.
DIVIDEND AND LIQUIDATION RIGHTS
Under DI's Articles of Incorporation, holders of DI Class A Stock are
entitled to receive, when, as and if declared by the DI Board of Directors,
dividends not to exceed $25.50 per share annually, on a noncumulative basis,
before any dividends are declared and paid upon the DI Class B Stock. In
addition, after dividends equal to $25.50 per share annually have been declared
and paid on the DI Class B Stock, dividends not to exceed $19.50 per share
annually are to be paid to holders of DI Class A Stock on a noncumulative basis
before any additional dividends are paid on the DI Class B Stock. After annual
dividends in the aggregate amount of $45.00 per share are declared and paid upon
the DI Class A Stock, there is no limitation on the amount of additional
dividends that may be declared and paid on the DI Class B Stock for such year.
Upon the liquidation of DI, after the debts of DI have been paid, holders of
DI Class A Stock are entitled to receive $255 per share plus any declared and
unpaid dividends on such stock before any payment is made to the holders of the
DI Class B Stock. In addition, the holders of DI Class A Stock are entitled to
receive $195 per share after $255 per share plus any declared and unpaid
dividends thereon (not to exceed $25.50 per share annually) has been set aside
for payment to the holders of the DI Class B Stock. Thereafter, the holders of
DI Class B Stock are entitled to receive all the remaining assets of DI
available for distribution to shareholders.
The dividend and liquidation rights of holders of AMCE Common Stock and AMCE
Class B Stock are described under "Description of Capital Stock--AMCE Common and
Class B Stock--Dividend and Liquidation Rights."
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REDEMPTION
DI's Articles of Incorporation provide that the DI Class A Stock is
redeemable at the option of DI at a redemption price of $255 per share, plus
$195 per share after assets have been set aside sufficient to redeem all shares
of DI Class B Stock at a price of $255 per share, together with any declared and
unpaid dividends thereon. Notwithstanding the above, the shares of DI Class A
Stock held by the initial individual holder thereof are not redeemable under any
circumstances. DI Class B Stock is not redeemable by DI.
AMCE Common Stock and AMCE Class B Stock are not redeemable by AMCE.
PREEMPTIVE RIGHTS
Holders of DI Class A Stock, DI Class B Stock, AMCE Common Stock and AMCE
Class B Stock have no preemptive rights.
VOTING RIGHTS
IN GENERAL. Holders of DI Class A Stock and DI Class B Stock are entitled
to one vote for each share held of record with respect to all matters submitted
to a vote of DI shareholders, except that, in the election of directors, the
shareholders are entitled to cumulative voting. (Because DI has only one
director, however, cumulative voting has no effect.) See "Description of Capital
Stock--AMCE Common Stock and Class B Stock--Voting Rights" for a description of
the general voting rights of AMCE Common Stock and AMCE Class B Stock. Neither
the holders of AMCE Common Stock nor the holders of AMCE Class B Stock have
cumulative voting rights in the election of directors.
REQUISITE VOTING PERCENTAGE IN GENERAL AND IN CERTAIN EXTRAORDINARY
MATTERS. Both the GBCLM and the DGCL generally provide that the affirmative
vote of a majority of the shares represented (either in person or by proxy) and
entitled to vote at a shareholders' meeting at which a quorum is present is
required for routine shareholder action other than the election of directors.
With respect to the election of directors, the GBCLM grants cumulative voting
rights in the election of directors unless the corporation's articles of
incorporation or bylaws provide otherwise. (As stated above, DI has only one
director, so cumulative voting has no effect.) Under the DGCL, unless a
corporation's certificate of incorporation or bylaws provide otherwise,
directors are elected by a plurality of the votes of the stockholders; if a
separate vote by class is required, the affirmative vote of a majority of a
quorum of that class is required. For mergers, consolidations and transactions
involving the disposition of substantially all of a corporation's assets, the
GBCLM requires the affirmative vote of two-thirds of the outstanding shares
entitled to vote; the DGCL requires the affirmative vote of a majority of
outstanding shares entitled to vote for such extraordinary transactions. Under
the GBCLM and the DGCL, amendments to a corporation's articles or certificate of
incorporation require the affirmative vote of a majority of outstanding shares
entitled to vote, and the affirmative vote of a majority of the outstanding
shares of any class entitled to vote thereon as a class. Under the GBCLM, a
class is entitled to vote on various types of amendments, including those which
change the authorized number or par value of shares of the class, effect an
exchange or cancellation of shares of the class, change the designations,
preferences, limitations or relative rights of the shares of the class or create
a new class of shares having rights superior to those of the class. Under the
DGCL, a class is entitled to vote as a class on amendments which change the
authorized number or par value of shares of the class or alter or change the
powers, preferences or special rights of the shares of the class so as to affect
them adversely.
Both the GBCLM and the DGCL permit a corporation to require a greater
affirmative vote on any matters in its articles or certificate of incorporation
or its by-laws, but DI and AMCE do not require any such greater voting
requirement in their respective Articles or Certificate of Incorporation or
Bylaws, except that AMCE's Certificate of Designations respecting the
Convertible Preferred Stock requires the approval of the holders of two-thirds
of the outstanding shares of Convertible Preferred Stock for the
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authorization, issuance or increase in the authorized amount of any additional
class of securities senior to the Convertible Preferred Stock as to dividend and
liquidation rights or for any amendment to AMCE's Certificate of Incorporation
if the amendment would change the authorized number, the par value or the rights
pertaining to the shares of Convertible Preferred Stock. See "Information about
the Company-- Description of Capital Stock--Convertible Preferred Stock--Voting
Rights."
TRANSACTIONS WITH INTERESTED SHAREHOLDERS. The GBCLM and the DGCL both
contain provisions that restrict a corporation from engaging in certain
"business combinations" with an "interested" shareholder. Such provisions,
however do not apply to certain types of corporations. Under the GBCLM, such
provisions do not apply to, among others, a corporation with less than 100
shareholders or, unless its articles of incorporation provide otherwise, a
corporation that does not have a class of voting stock registered with the
Commission. DI has less than 100 shareholders and, furthermore, DI does not have
a class of stock registered with the Commission, so the Missouri "business
combination" statutes do not apply to DI.
The business combination statutes of the DGCL would generally apply to AMCE,
and DI is an "interested stockholder" of AMCE; however, the DGCL "interested
stockholder" provisions do not apply to transactions occurring more than three
years after the date on which the interested stockholder became an interested
stockholder. DI has been an "interested stockholder" of AMCE for more than three
years, so the DGCL interested stockholder provisions would not apply to any
business combinations between AMCE and DI, including the Merger. The "interested
stockholder" provisions of the DGCL also do not apply to transactions between
AMCE and Mr. Stanley H. Durwood, because he has also been an "interested
stockholder" of AMCE for more than three years.
The "interested stockholder" provisions of the DGCL are summarized below.
Under the DGCL, a corporation may not engage in any "business combination"
(defined below) with an "Interested Stockholder" (defined below) for a period of
three years following the date that such stockholder became an Interested
Stockholder (the "Interested Stockholder Date") unless:
(i) prior to the Interested Stockholder Date, the board of directors of
the corporation approves either the business combination or the transaction
which resulted in the stockholder becoming an Interested Stockholder;
(ii) upon consummation of the transaction which resulted in the
stockholder becoming an Interested Stockholder, such stockholder owns at
least 85% of the voting stock of the corporation (excluding shares that are
(A) owned by persons who are directors and also officers or (B) part of
certain employee stock plans) outstanding at the time the transaction
commenced; or
(iii) on or subsequent to the Interested Stockholder Date, the business
combination is approved by the board of directors and is authorized at a
meeting of stockholders by the affirmative vote, and not by written consent,
of at least two-thirds of the outstanding voting stock which is not owned by
the Interested Stockholder.
As used in the preceding paragraphs, an "Interested Stockholder" is any
person (other than the corporation or its subsidiaries) that, with certain
exceptions, (i) is the owner of 15% or more of the outstanding voting stock of
the corporation, or (ii) is an affiliate or associate of the corporation and was
the owner of 15% or more of the outstanding voting stock of the corporation at
any time within the three-year period immediately prior to the Interested
Stockholder Date.
As used in the preceding paragraphs, a "business combination" is:
(i) a merger or consolidation;
(ii) a sale, lease, exchange, mortgage, pledge, transfer or other
disposition of a corporation's assets having an aggregate market value equal
to either ten percent or more of the aggregate
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market value of all of the corporation's assets, determined on a
consolidated basis, or ten percent or more of the aggregate market value of
all of the corporation's outstanding stock;
(iii) a transaction which results in the issuance or transfer of shares
of the corporation's stock, except pursuant to (a) the exercise of rights to
purchase stock offered, (b) a parent-subsidiary merger, (c) a dividend or
distribution paid or made pro rata to all stockholders of the corporation,
(d) an offer by the corporation to purchase stock, made on the same terms to
all stockholders, or (e) any issuance or transfer of stock by the
corporation;
(iv) a reclassification of securities, recapitalization or other
transaction which increases an Interested Stockholder's proportionate
interest; or
(v) receipt by an Interested Stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits from the
corporation.
SPECIAL MEETINGS OF SHAREHOLDERS
Both the GBCLM and the DGCL provide that special meetings of stockholders
may be called by a corporation's board of directors or by such persons as may be
authorized in the corporation's charter documents or by-laws. DI's Bylaws
provide that DI's President or the holders of not less than one-fifth of all the
outstanding shares entitled to vote at such meeting may call special meetings of
the DI shareholders. AMCE's Bylaws provide that AMCE's Chairman of the Board may
call special meetings of the AMCE stockholders.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The GBCLM permits the shareholders of DI to act without a meeting if a
consent in writing setting forth the action so taken is signed by all of the
shareholders entitled to vote with respect to the subject matter thereof. The
DGCL and AMCE's Bylaws permit the stockholders of AMCE to act without a meeting,
without prior notice and without a vote, if a consent in writing setting forth
the actions so taken is signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize such
actions at a meeting at which all shares entitled to vote with respect to the
subject matter thereof were present and voted.
THE BOARD OF DIRECTORS
NUMBER ON THE BOARD AND REMOVAL OF DIRECTORS. The Board of Directors of DI
consists of a single director. The GBCLM permits DI shareholders, by majority
vote, to remove a director or the entire DI Board of Directors with or without
cause.
The number of directors constituting the AMCE Board presently is seven,
except during a "default period," as defined in the Certificate of Designations
respecting the Convertible Preferred Stock, when the number would be increased
by two and the two additional directors would be elected by the holders of
Convertible Preferred Stock. Under AMCE's Certificate of Incorporation, any
director may be removed either with or without cause, at any time, by the
affirmative vote of the holders of a majority of all of the outstanding shares
of the class of stock which elected such director, except that if the director
was elected by the holders of AMCE Class B Stock and if there are no shares of
AMCE Class B Stock outstanding, then the affirmative vote of the holders of a
majority of all outstanding shares of AMCE Common Stock are required for
removal.
FILLING VACANCIES ON THE BOARD OF DIRECTORS. Both the GBCLM and the DGCL
permit the board of directors of a corporation, by majority vote, to fill
vacancies on the board and newly-created directorships resulting from an
increase in board size without a vote of stockholders, until the next election
of directors by the stockholders. The GBCLM permits such action unless
prohibited by the corporation's articles of incorporation or by-laws. DI's
Bylaws expressly provide such authorization with respect to
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vacancies created by death, resignation or otherwise; however, because DI has a
single director, action by the shareholders of DI would be necessary to fill a
vacancy on the DI Board. The DGCL permits the board to fill such vacancies and
newly-created directorships unless the corporation's certificate of
incorporation or by-laws provide otherwise. AMCE's Certificate of Incorporation
provides that if a director ceases to be a director by reason of death,
resignation or disability, the vacancy shall be filled by a majority of the
remaining directors elected by the holders of the same class of stock which
elected the former director or, if applicable, by the sole remaining director so
elected, except that if the director was elected by the holders of AMCE Class B
Stock and there are no shares of Class B Stock outstanding, the vacancy shall be
filled by the affirmative vote of the holders of a majority of all outstanding
shares of AMCE Common Stock. In addition, under the DGCL, if, at the time of
filling any vacancy or newly-created directorship, the directors then in office
constitute less than a majority of the entire board (as constituted immediately
prior to any such increase), the Delaware Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten (10) percent
of the shares entitled to vote for directors, summarily order an election to be
held to fill any such vacancies or newly-created directorships or to replace the
directors chosen by the directors then in office. Unless the exception under
Delaware law is applicable, a director elected by other directors in each case
holds office until the next election of the class for which such director was
chosen.
DIRECTOR LIABILITY. The DGCL permits a corporation to include in its
certificate of incorporation provisions eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for such director's breach of fiduciary duty, provided that such
provisions may not eliminate or limit a director's liability (i) for a breach of
his or her duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or involving intentional misconduct or a knowing
violation of law; (iii) for unlawful payments of dividends, certain stock
repurchases or redemptions; or (iv) for any transaction from which the director
derived an improper personal benefit. These provisions generally protect a
corporation's directors from personal liability for breaches of their duty of
care, including liability for grossly negligent business decisions. AMCE's
Certificate of Incorporation includes provisions which eliminate the personal
liability of directors to AMCE or its stockholders for monetary damages for
breach of fiduciary duty to the fullest extent permitted by the DGCL, as it may
be amended from time to time. These provisions of AMCE's Certificate of
Incorporation, however, would not, as stated above, affect directors'
liabilities based on violations of federal laws and would otherwise only affect
claims for monetary damages, so that equitable remedies, such as injunctions or
rescission, would still be available for breaches of fiduciary duty. In
addition, these provisions apply only to claims against a director arising out
of his or her role as a director; if the director is also an officer, they do
not affect his or her liability as an officer. Neither the GBCLM nor DI's
Articles of Incorporation or Bylaws contain similar provisions that would
expressly permit DI to eliminate or limit the personal liability of its
directors to the corporation and its shareholders for monetary damages for such
director's breach of his or her fiduciary duty.
INDEMNIFICATION. Both the GBCLM and the DGCL provide that indemnification
of a person who (i) is a party, or is threatened to be made a party, to legal
proceedings by reason of the fact that such person is or was a director, officer
or agent of a corporation or (ii) is or was serving as a director, officer,
employee or agent of a corporation or other firm at the request of a
corporation, against expenses, judgments, fines and amounts paid in settlement,
is mandatory under certain circumstances (generally respecting expenses,
including attorneys' fees, incurred by an indemnified party who is successful on
the merits in the proceeding giving rise to the claim for indemnification) and
permissive in others. Under the GBCLM and the DGCL, permissive indemnification
is subject to authorization (i) by the board of directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceedings, or (ii) if such a quorum is not obtainable or, even if obtainable,
if a quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or (iii) by the stockholders. The standard of conduct
required of a person seeking indemnification from a corporation is generally the
same under Missouri and Delaware law and requires that a person seeking
indemnification shall have
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acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interest of the corporation and, with respect to criminal
proceedings, had no reason to believe his or her conduct was unlawful. For
actions or suits brought by or in the name of the corporation, both the GBCLM
and the DGCL provide that a director, employee, officer or agent of a
corporation may be indemnified against expenses by such person in connection
with such proceeding, except if such person is adjudged to be liable to the
corporation, in which case such person can be indemnified if and only to the
extent that a court determines that, despite the adjudication of liability, in
view of all of the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall deem
proper.
DI's Bylaws contain provisions requiring indemnification of each director
and officer and each person who, at the request of DI, served as a director or
officer of a corporation in which DI owned stock against liabilities and
expenses (including certain amounts paid in compromise settlements) incurred in
connection with any action or claim in which such person is made a party by
reason of being or having been such director or officer, except for matters in
which such person is finally adjudged to have been liable for negligence or
misconduct in the performance of his or her duties as a director or as an
officer. AMCE's Certificate of Incorporation contains provisions requiring
indemnification, to the fullest extent permitted by the DGCL, of each director
and officer and each person who serves, at the request of AMCE, as the director
or officer of another corporation or as AMCE's representative in a partnership
or other entity. AMCE's Certificate of Incorporation also provides for mandatory
advance payment of indemnifiable expenses by AMCE in certain circumstances.
BYLAWS
Under the GBCLM, the bylaws of a corporation may be made, altered, amended,
suspended or repealed by the shareholders, unless and to the extent that such
power is vested in the board of directors by the articles of incorporation. DI's
Articles of Incorporation provide that DI's Bylaws may be amended either by the
shareholders or by the Board of Directors, unless the shareholders, at the time
they enact any bylaw, expressly provide otherwise with respect to such bylaw.
Under the DGCL, the authority to amend or repeal bylaws is placed exclusively in
the stockholders of a corporation, unless the corporation's certificate of
incorporation confers the authority on the directors as well. AMCE's Certificate
of Incorporation expressly authorizes the AMCE Board to make, amend or repeal
AMCE's Bylaws.
DISSENTERS' RIGHTS
The GBCLM and the DGCL both set forth procedures under which shareholders
may dissent from, and receive payment in the amount of the fair value of their
shares in connection with, most mergers, consolidations and exchanges or sales
of all or substantially all of a corporation's assets. The GBCLM also permits
shareholders to dissent from control shares acquisitions that are approved by
shareholders of a corporation. The rights of DI shareholders to dissent from the
Merger under the GBCLM are summarized above under "The Merger--Dissenters'
Rights." The DGCL provides, however, that no such dissenters' rights are
available with respect to a merger or consolidation if the shares entitled to
receive notice of and to vote on the merger or consolidation are either listed
on a national securities exchange or held of record by more than 2,000
stockholders ("Public Shares") or if the corporation is the surviving
corporation and no vote of its stockholders is required for such transaction,
unless the holders thereof are required by the terms of an agreement of merger
or consolidation to accept for their shares anything other than (i) shares of
the surviving or resulting corporation, (ii) public shares of any corporation,
(iii) cash in lieu of fractional shares of such corporations, or (iv) any
combination of the consideration described in clauses (i), (ii) and (iii). Under
the DGCL, holders of AMCE Common Stock have no dissenters' rights with respect
to the Merger.
The foregoing does not purport to be a complete description of the
differences between the statutory and other rights of shareholders of DI and
stockholders of AMCE. Such differences can be
110
<PAGE>
determined in full by reference to the GBCLM, the DGCL, the common law of each
of Missouri and Delaware, DI's Articles of Incorporation and Bylaws and AMCE's
Certificate of Incorporation and Bylaws.
DI SPECIAL MEETING
This Proxy--Information Statement/Prospectus is also furnished to
shareholders of DI in connection with the DI Special Meeting to be held on July
29, 1997 at 1:00 p.m., at DI's corporate headquarters, 106 West 14th Street,
Kansas City, Missouri. As of the DI Record Date, there were 120,000 shares of DI
Class A Stock outstanding and 40,784 shares of DI Class B Stock outstanding and
entitled to vote at the DI Special Meeting. Each share of DI Class A Stock and
DI Class B Stock is entitled to one vote on any matter presented at the DI
Special Meeting.
The DI Special Meeting is being called to vote upon the Merger Agreement in
order to effect the Merger as described in this Proxy--Information
Statement/Prospectus. The presence in person or by proxy of holders of DI Class
A Stock and DI Class B Stock owning 50% of shares of DI Class A and DI Class B
Stock entitled to notice of and to vote at the DI Special Meeting is necessary
to constitute a quorum. The Merger may be approved only on the affirmative vote
of the holders of two-thirds of all the outstanding shares of DI Class A Stock
and DI Class B Stock entitled to vote, voting as a class, and by the affirmative
vote of the holders of a majority of the shares of DI Class A Stock and DI Class
B Stock, each voting separately as a class.
This Proxy--Information Statement/Prospectus is being made available to
shareholders of DI on or about June 25, 1997.
STOCKHOLDER PROPOSALS
AMCE stockholders who wish to present proposals for action at the AMCE
Annual Meeting of Stockholders to be held in 1997 should submit their proposals
to AMCE at its address set forth on the first page of this Proxy--Information
Statement/Prospectus. Proposals must be received by AMCE no later than June 19,
1997, for consideration for inclusion in the 1997 Proxy Statement and proxy.
LEGAL MATTERS
Certain legal matters in connection with the legality of the shares of AMCE
Common Stock and Class B Stock offered hereby have been passed upon by Richards,
Layton & Finger, P.A., Wilmington, Delaware, who have acted as special counsel
to AMCE in connection with such matters. The firm is also counsel to the
defendants in the Derivative Action.
Chadbourne & Parke LLP has served as special tax counsel for the Company in
connection with the Merger.
EXPERTS
The consolidated balance sheets of AMC Entertainment Inc. and subsidiaries
as of April 3, 1997 and March 28, 1996 and the related consolidated statements
of operations, stockholders' equity and cash flows for the year (53 weeks) ended
April 3, 1997 and the years (52 weeks) ended March 28, 1996 and March 30, 1995
included in this Proxy-Information Statement/Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
The consolidated balance sheets of AMC Entertainment Inc. and subsidiaries
as of March 28, 1996 and March 30, 1995 and the related consolidated statements
of operations, stockholders' equity and cash flows for the years (52 weeks)
ended March 28, 1996, March 30, 1995 and March 31, 1994 incorporated by
reference in this Proxy-Information Statement/Prospectus, have been incorporated
111
<PAGE>
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated balance sheets of Durwood, Inc. and subsidiaries as of
April 3, 1997 and March 28, 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for the year (53 weeks) ended
April 3, 1997 and the years (52 weeks) ended March 28, 1996 and March 30, 1995
included in this Proxy-Information Statement/Prospectus, have been included
herein in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in auditing and
accounting.
A representative of Coopers & Lybrand L.L.P. will be at the AMCE Special
Meeting to answer questions by stockholders and will have the opportunity to
make a statement if so desired.
INCORPORATION BY REFERENCE
The following documents filed by AMCE with the Commission (File No.
01-12429) are incorporated in this Proxy--Information Statement/Prospectus by
reference and hereby made a part hereof:
1. AMCE's Annual Report on Form 10-K for the fiscal year ended March 28,
1996; and
2. All other reports filed pursuant to Section 13(a) of the Exchange Act
since March 28, 1996.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Proxy--Information
Statement/Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy-- Information Statement/Prospectus.
AMCE will provide without charge to each person to whom a copy of its
Proxy--Information Statement/Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents incorporated
herein by reference, other than exhibits to such documents. Requests should be
directed to AMC Entertainment Inc., Attention: Ms. Nancy L. Gallagher, Vice
President and Secretary, 106 West 14th Street, Kansas City, Missouri 64105
(telephone: (816) 221-4000).
112
<PAGE>
AVAILABLE INFORMATION
AMCE has filed with the Commission a registration statement on Form S-4
(together with all amendments, exhibits, schedules and supplements thereto, the
"Registration Statement") under the Securities Act with respect to the shares
offered hereby. This Proxy--Information Statement/Prospectus, which forms a part
of the Registration Statement, does not contain all the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement. Statements
contained in this Proxy--Information Statement/Prospectus as to the contents of
certain documents are not necessarily complete and, in each instance where
reference is made to a document filed as an exhibit to the Registration
Statement, each such statement is qualified by such reference. The Registration
Statement (and the exhibits thereto) can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at its
principal office at Judiciary Plaza, 450 Fifth Street, N.W. Room 1024,
Washington, D.C. 20549, or at its regional offices at Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60661, and at Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Commission at prescribed rates through its Public Reference
Section at Judiciary Plaza, 450 Fifth Street, N.W. Washington, D.C. 20549.
AMCE is subject to the informational requirements of the Exchange Act, and,
in accordance therewith, files reports and other information with the
Commission. Such reports and other information can be inspected and copied at
prescribed rates at the public reference facilities mentioned above. The
Commission also maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
AMCE Common Stock and Convertible Preferred Stock are listed on the AMEX and
AMCE Common Stock is listed also on the Pacific Stock Exchange. AMCE's periodic
reports and proxy statements filed under the Exchange Act as well as other
information concerning AMCE can be requested at the American Stock Exchange, 86
Trinity Place, New York, New York 10086 and at the Pacific Stock Exchange, 301
Pine Street, Suite 1104, San Francisco, California 94104.
DI is not subject to the informational requirements of the Exchange Act.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AMC ENTERTAINMENT INC.
PRO FORMA FINANCIAL STATEMENTS:
Condensed Pro Forma Financial Statements................................................................... F-2
Condensed Pro Forma Consolidated Statement of Operations for the year (53 weeks) ended April 3, 1997....... F-3
Condensed Pro Forma Consolidated Balance Sheet as of April 3, 1997......................................... F-4
Notes to Condensed Pro Forma Financial Statements.......................................................... F-5
AUDITED FINANCIAL STATEMENTS:
Report of Independent Accountants.......................................................................... F-7
Consolidated Statements of Operations for the year (53 weeks) ended April 3, 1997 and years (52 weeks)
ended March 28, 1996 and March 30, 1995.................................................................. F-8
Consolidated Balance Sheets as of April 3, 1997 and March 28, 1996......................................... F-9
Consolidated Statements of Cash Flows for the year (53 weeks) ended April 3, 1997 and years (52 weeks)
ended March 28, 1996 and March 30, 1995.................................................................. F-10
Consolidated Statements of Stockholders' Equity for the year (53 weeks) ended April 3, 1997 and years (52
weeks) ended March 28, 1996 and March 30, 1995........................................................... F-12
Notes to Consolidated Financial Statements................................................................. F-13
DURWOOD, INC.
PRO FORMA FINANCIAL STATEMENTS:
Condensed Pro Forma Financial Statements................................................................... F-32
Condensed Pro Forma Consolidated Statement of Operations for the year (53 weeks) ended April 3, 1997....... F-33
Condensed Pro Forma Consolidated Balance Sheet as of April 3, 1997......................................... F-34
Notes to Condensed Pro Forma Financial Statements.......................................................... F-35
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants.......................................................................... F-37
Consolidated Statements of Operations for the year (53 weeks) ended April 3, 1997 and years (52 weeks)
ended March 28, 1996 and March 30, 1995.................................................................. F-38
Consolidated Balance Sheets as of April 3, 1997 and March 28, 1996......................................... F-39
Consolidated Statements of Cash Flows for the year (53 weeks) ended April 3, 1997 and years (52 weeks)
ended March 28, 1996 and March 30, 1995.................................................................. F-40
Consolidated Statements of Stockholders' Equity for the year (53 weeks) ended April 3, 1997 and years (52
weeks) ended March 28, 1996 and March 30, 1995........................................................... F-42
Notes to Consolidated Financial Statements................................................................. F-43
</TABLE>
F-1
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Condensed Pro Forma Statement of Operations and
Balance Sheet have been prepared giving effect to the Merger of Durwood, Inc.
("DI") with AMC Entertainment Inc. ("AMCE" or the "Company") and Note Offering.
The Condensed Pro Forma Statement of Operations for the year (53 weeks) ended
April 3, 1997 assumes that the Merger and Note Offering occurred on March 29,
1996. The Condensed Pro Forma Balance Sheet assumes that the Merger occurred on
April 3, 1997.
The unaudited Condensed Pro Forma Financial Statements do not purport to
represent the Company's financial position or results of operations had the
above transactions in fact occurred on such dates. In addition, the unaudited
Condensed Pro Forma Financial Statements are not intended to be indicative of
the Company's future financial position or results of operations.
The unaudited Condensed Pro Forma Financial Statements should be read in
conjunction with the historical financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
F-2
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR (53 WEEKS) ENDED APRIL 3, 1997
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA AMCE
PRO FORMA PRO FORMA PRO FORMA FOR MERGER AND
AMCE ADJUSTMENTS AMCE FOR ADJUSTMENTS FOR NOTE OFFERING
ACTUAL(1) FOR MERGER(2) MERGER NOTE OFFERING COMBINED
----------- -------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 749,597 $ -- $ 749,597 $ -- $ 749,597
Cost of operations................. 580,002 -- 580,002 -- 580,002
General and administrative......... 56,647 -- 56,647 -- 56,647
Depreciation and amortization...... 59,803 -- 59,803 -- 59,803
----------- -------------- ----------- ------- -----------------
Operating income................. 53,145 -- 53,145 -- 53,145
Interest expense................... 22,022 -- 22,022 8,800(6) 30,822
Other income, net.................. 772 -- 772 -- 772
----------- -------------- ----------- ------- -----------------
Earnings before income taxes....... 31,895 -- 31,895 (8,800) 23,095
Income tax provision............... 12,900 -- 12,900 (3,080)(7) 9,820
----------- -------------- ----------- ------- -----------------
Net earnings....................... $ 18,995 $ -- $ 18,995 ($ 5,720) $ 13,275
----------- -------------- ----------- ------- -----------------
----------- -------------- ----------- ------- -----------------
Preferred dividends................ 5,907 5,907 5,907
----------- ----------- -----------------
Net earnings for common shares..... $ 13,088 $ 13,088 $ 7,368
----------- ----------- -----------------
----------- ----------- -----------------
Earnings per share:
Primary.......................... $ .74 $ .74 $ .42
----------- ----------- -----------------
----------- ----------- -----------------
Fully diluted.................... $ .73 $ .73 $ .41
----------- ----------- -----------------
----------- ----------- -----------------
Weighted average number of shares
outstanding:
Primary.......................... 17,726 17,726 17,726
----------- ----------- -----------------
----------- ----------- -----------------
Fully diluted.................... 17,940 17,940 17,940
----------- ----------- -----------------
----------- ----------- -----------------
</TABLE>
See Notes to Condensed Pro Forma Financial Statements.
F-3
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 3, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AMCE ADJUSTMENTS FOR AMCE FOR
ACTUAL(1) MERGER(2) MERGER
----------- ---------------- -----------
<S> <C> <C> <C>
ASSETS
Current assets....................................................... $ 83,672 $ -- $ 83,672
Property, net........................................................ 543,058 -- 543,058
Intangible assets, net............................................... 28,679 -- 28,679
Other long-term assets............................................... 62,804 -- 62,804
----------- -------- -----------
Total assets....................................................... $ 718,213 $ -- $ 718,213
----------- -------- -----------
----------- -------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities.................................................. $ 134,267 $ 1,000(3) $ 135,267
Corporate borrowings................................................. 315,046 -- 315,046
Capital lease obligations............................................ 55,237 -- 55,237
Other long-term liabilities.......................................... 43,651 -- 43,651
----------- -------- -----------
548,201 1,000 549,201
Stockholders' equity:
$1.75 Cumulative Convertible Preferred Stock; 3,303,600 shares
outstanding...................................................... 2,202 -- 2,202
Common Stock; 6,604,469 shares issued; 12,745,812 on a pro forma
basis............................................................ 4,403 4,094(4) 8,497
Convertible Class B Stock; 11,157,000 shares issued and
outstanding; 5,015,657 on a pro forma basis...................... 7,438 (4,094)(5) 3,344
Additional paid-in capital......................................... 107,781 -- 107,781
Foreign currency translation adjustment............................ (2,048) -- (2,048)
Retained earnings.................................................. 50,605 (1,000)(3) 49,605
Common Stock in treasury, 20,500 shares............................ (369) -- (369)
----------- -------- -----------
170,012 (1,000) 169,012
----------- -------- -----------
$ 718,213 $ -- $ 718,213
----------- -------- -----------
----------- -------- -----------
</TABLE>
See Notes to Condensed Pro Forma Financial Statements.
F-4
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(1) The amounts presented hereunder were taken from the Company's April 3, 1997
Consolidated Financial Statements.
(2) Prior to the Merger, all assets of DI, other than DI's equity interest in
the Company, will be transferred to DI's subsidiary, Delta Properties, Inc.
("Delta"), which will agree to assume DI's liabilities. Delta's stock then
will be distributed to the DI shareholders. See "Durwood, Inc. Condensed Pro
Forma Financial Statements." As a result, management expects that the Merger
will be accounted for as a corporate reorganization and that, accordingly,
the recorded balances for consolidated assets, liabilities, total
stockholders' equity and results of operations of the Company would not be
affected.
(3) Represents expenses associated with the Merger. These nonrecurring charges
have not been reflected in the Condensed Pro Forma Statement of Operations.
(4) Represents the net effect to Common Stock from the cancellation of
2,641,951 shares of Common Stock owned by DI and the issuance of 8,783,294
shares of Common Stock to the Durwood Children upon the Merger.
(5) Represents the net effect to Class B Stock from the cancellation of
11,157,000 shares of Class B Stock owned by DI and the issuance of 5,015,567
shares of Class B Stock to Stanley H. Durwood upon the Merger.
(6) Represents the addition to interest expense from March 29, 1996 to March
19, 1997 (the date of issuance) on the Notes, including accretion of debt
discount and amortization of debt issuance costs, and the reduction of
interest expense associated with the reduction of outstanding indebtedness
under the Credit Facility for the net proceeds from the Note Offering. If
the Note Offering had occurred on March 29, 1996, the excess net proceeds
would have been available for investment. Interest income from this use of
proceeds would have been approximately $968,000 for the year (53 weeks)
ended April 3, 1997 (assuming a rate of 4.7%).
(7) Represents the adjustment of income taxes at the statutory rate of 35% for
fiscal 1997.
F-5
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT ACCOUNTANTS
YEAR (53 WEEKS) ENDED
APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996 AND MARCH 30, 1995
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of AMC Entertainment Inc.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of AMC
Entertainment Inc. and subsidiaries as of April 3, 1997 and March 28, 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year (53 weeks) ended April 3, 1997 and the years (52 weeks) ended
March 28, 1996 and March 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AMC
Entertainment Inc. and subsidiaries as of April 3, 1997 and March 28, 1996, and
the consolidated results of their operations and their cash flows for the year
(53 weeks) ended April 3, 1997 and the years (52 weeks) ended March 28, 1996 and
March 30, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
May 16, 1997
F-7
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND
YEARS (52 WEEKS) ENDED MARCH 28, 1996 AND MARCH 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Admissions............................................................... $ 492,951 $ 431,361 $ 371,145
Concessions.............................................................. 225,167 196,645 169,120
Other.................................................................... 31,479 27,966 23,079
----------- ----------- -----------
Total revenues....................................................... 749,597 655,972 563,344
Expenses
Film rentals............................................................. 247,199 215,099 182,669
Concession costs......................................................... 36,748 30,417 24,383
Other.................................................................... 296,055 245,842 225,711
----------- ----------- -----------
Total cost of operations............................................. 580,002 491,358 432,763
General and administrative............................................... 56,647 52,059 41,639
Depreciation and amortization............................................ 59,803 43,886 37,913
----------- ----------- -----------
Total expenses....................................................... 696,452 587,303 512,315
----------- ----------- -----------
Operating income..................................................... 53,145 68,669 51,029
Other expense (income)
Interest expense
Cororate borrowings.................................................... 12,016 18,099 24,502
Capital lease obligations.............................................. 10,006 10,729 11,406
Investment income........................................................ (856) (7,052) (10,013)
Loss on disposition of assets............................................ 84 222 156
----------- ----------- -----------
Earnings before income taxes and extraordinary item........................ 31,895 46,671 24,978
Income tax provision....................................................... 12,900 19,300 (9,000)
----------- ----------- -----------
Earnings before extraordinary item......................................... 18,995 27,371 33,978
Extraordinary item -- Loss on extinguishment of debt (net of income tax
benefit of $13,400)...................................................... -- (19,350) --
----------- ----------- -----------
Net earnings............................................................... $ 18,995 $ 8,021 $ 33,978
----------- ----------- -----------
----------- ----------- -----------
Preferred dividends........................................................ 5,907 7,000 7,000
----------- ----------- -----------
Net earnings for common shares............................................. $ 13,088 $ 1,021 $ 26,978
----------- ----------- -----------
----------- ----------- -----------
Earnings per share before extraordinary item:
Primary.................................................................. $ .74 $ 1.21 $ 1.63
----------- ----------- -----------
----------- ----------- -----------
Fully diluted............................................................ $ .73 $ 1.20 $ 1.45
----------- ----------- -----------
----------- ----------- -----------
Earnings per share:
Primary.................................................................. $ .74 $ .06 $ 1.63
----------- ----------- -----------
----------- ----------- -----------
Fully diluted............................................................ $ .73 $ .06 $ 1.45
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 3, 1997 AND MARCH 28, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents.................................................................. $ 24,715 $ 10,795
Receivables, net of allowance for doubtful accounts of $704 as of April 3, 1997 and
$801 as of March 28, 1996........................................................... 42,188 20,503
Other current assets.................................................................. 16,769 15,179
----------- -----------
Total current assets................................................................ 83,672 46,477
Property, net........................................................................... 543,058 355,485
Intangible assets, net.................................................................. 28,679 36,483
Other long-term assets.................................................................. 62,804 45,013
----------- -----------
Total assets........................................................................ $ 718,213 $ 483,458
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................................... $ 88,367 $ 59,353
Accrued expenses and other liabilities................................................ 42,459 43,319
Current maturities of corporate borrowings and capital lease obligations.............. 3,441 2,904
----------- -----------
Total current liabilities........................................................... 134,267 105,576
Corporate borrowings.................................................................... 315,046 126,127
Capital lease obligations............................................................... 55,237 59,141
Other long-term liabilities............................................................. 43,651 33,696
----------- -----------
Total liabilities................................................................... 548,201 324,540
Commitments and contingencies
Stockholders' equity:
$1.75 Cumulative Convertible Preferred Stock, 66 2/3 CENTS par value; 3,303,600 and
4,000,000 shares issued and outstanding as of April 3, 1997, and March 28, 1996,
respectively (aggregate liquidation preference of $82,590 and $100,000 as of April
3, 1997 and March 28, 1996, respectively)........................................... 2,202 2,667
Common Stock, 66 2/3 CENTS par value; 6,604,469 and 5,388,880 shares issued as of
April 3, 1997, and March 28, 1996, respectively..................................... 4,403 3,593
Convertible Class B Stock, 66 2/3 CENTS par value; 11,157,000 shares issued and
outstanding......................................................................... 7,438 7,438
Additional paid-in capital............................................................ 107,781 107,986
Foreign currency translation adjustment............................................... (2,048) --
Retained earnings..................................................................... 50,605 37,603
----------- -----------
170,381 159,287
Less--Common Stock in treasury, at cost, 20,500 shares as of April 3, 1997 and March
28, 1996............................................................................ 369 369
----------- -----------
Total stockholders' equity.......................................................... 170,012 158,918
----------- -----------
Total liabilities and stockholders' equity.......................................... $ 718,213 $ 483,458
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS)
ENDED MARCH 28, 1996 AND MARCH 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
Cash flows from operating activities:
Net earnings.......................................................... $ 18,995 $ 8,021 $ 33,978
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization....................................... 59,803 43,886 37,913
Deferred income taxes............................................... (2,476) (1,328) (21,285)
Gain on sale of available for sale investments...................... -- -- (1,407)
Extraordinary item.................................................. -- 19,350 --
Loss on sale of long-term assets.................................... 84 222 156
Change in assets and liabilities:
Receivables....................................................... (609) (1,537) 807
Other current assets.............................................. 1,578 10,167 (578)
Accounts payable.................................................. 41,486 7,458 341
Accrued expenses and other liabilities............................ 12,441 7,640 (5,763)
Other, net............................................................ 2,772 2,968 204
------------ ------------ ------------
Total adjustments............................................... 115,079 88,826 10,388
------------ ------------ ------------
Net cash provided by operating activities............................. 134,074 96,847 44,366
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures.................................................. (253,380) (120,796) (56,403)
Purchase of real estate investment.................................... (7,692) -- --
Acquisition of minority interest...................................... (7,400) -- --
Purchases of available for sale investments........................... -- (424,134) (314,368)
Proceeds from maturities of available for sale investments............ -- 493,278 364,374
Proceeds from sales of available for sale investments................. -- -- 11,689
Proceeds from disposition of long-term assets......................... 15,054 2,243 70
Net change in refundable construction advances........................ (21,076) (10,394) (182)
Other, net............................................................ (9,423) (7,045) (1,516)
------------ ------------ ------------
Net cash provided by (used in) investing activities................... (283,917) (66,848) 3,664
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit facility........... (10,000) 120,000 --
Proceeds from issuance of 9 1/2% Senior Subordinated Notes............ 198,938 -- --
Principal payments under capital lease obligations.................... (2,835) (2,455) (2,088)
Repurchase of 11 7/8% Senior and 12 5/8% Senior Subordinated Notes.... -- (220,734) --
Cash overdrafts....................................................... (11,673) 22,848 --
Other repayments...................................................... -- (404) (34)
Proceeds from exercise of stock options............................... 140 878 239
Dividends paid on preferred stock..................................... (5,993) (7,000) (7,233)
Deferred financing costs and other.................................... (4,595) (3,570) --
------------ ------------ ------------
Net cash provided by (used in) financing activities................... 163,982 (90,437) (9,116)
------------ ------------ ------------
Effect of exchange rate changes on cash and equivalents............... (219) -- --
------------ ------------ ------------
Net increase (decrease) in cash and equivalents......................... 13,920 (60,438) 38,914
Cash and equivalents at beginning of year............................... 10,795 71,233 32,319
------------ ------------ ------------
Cash and equivalents at end of year..................................... $ 24,715 $ 10,795 $ 71,233
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
(IN THOUSANDS)
Supplemental Schedule of Noncash Investing and Financing Activities:
During 1995, capital lease obligations of $1,363 were incurred in connection
with property acquired.
Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized of $3,344, $3,003 and $870)............. $ 24,188 $ 34,775 $ 35,878
Income taxes, net............................................................ 6,285 9,787 14,822
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN
PREFERRED STOCK COMMON STOCK CLASS B STOCK ADDITIONAL CURRENCY
---------------------- ---------------------- ------------------------ PAID-IN TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT
----------- --------- ----------- --------- ------------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1,
1994.................. 4,000,000 $ 2,667 5,266,830 $ 3,511 11,157,000 $ 7,438 $ 106,951 $ --
Net earnings.......... -- -- -- -- -- -- -- --
Exercise of options on
Common Stock........ -- -- 39,550 27 -- -- 212 --
Dividends declared:
$1.75 Preferred
Stock............. -- -- -- -- -- -- -- --
----------- --------- ----------- --------- ------------- --------- ----------- -----------
Balance, March 30,
1995.................. 4,000,000 2,667 5,306,380 3,538 11,157,000 7,438 107,163 --
Net earnings.......... -- -- -- -- -- -- -- --
Exercise of options on
Common Stock........ -- -- 82,500 55 -- -- 823 --
Dividends declared:
$1.75 Preferred
Stock............. -- -- -- -- -- -- -- --
Acquisition of Common
Stock in Treasury... -- -- -- -- -- -- -- --
----------- --------- ----------- --------- ------------- --------- ----------- -----------
Balance, March 28,
1996.................. 4,000,000 2,667 5,388,880 3,593 11,157,000 7,438 107,986 --
Net earnings.......... -- -- -- -- -- -- -- --
Exercise of options on
Common Stock........ -- -- 15,000 10 -- -- 130 --
Preferred Stock
conversions......... (696,400) (465) 1,200,589 800 -- -- (335) --
Dividends declared:
$1.75 Preferred
Stock............. -- -- -- -- -- -- -- --
Foreign currency
translation
adjustment.......... -- -- -- -- -- -- -- (2,048)
----------- --------- ----------- --------- ------------- --------- ----------- -----------
Balance, April 3,
1997.................. 3,303,600 $ 2,202 6,604,469 $ 4,403 11,157,000 $ 7,438 $ 107,781 $ (2,048)
----------- --------- ----------- --------- ------------- --------- ----------- -----------
----------- --------- ----------- --------- ------------- --------- ----------- -----------
<CAPTION>
COMMON STOCK IN
TREASURY TOTAL
RETAINED ---------------------- STOCKHOLDERS'
EARNINGS SHARES AMOUNT EQUITY
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, April 1,
1994.................. $ 9,837 -- $ -- $ 130,404
Net earnings.......... 33,978 -- -- 33,978
Exercise of options on
Common Stock........ -- -- -- 239
Dividends declared:
$1.75 Preferred
Stock............. (7,233) -- -- (7,233)
--------- --------- ----------- --------------
Balance, March 30,
1995.................. 36,582 -- -- 157,388
Net earnings.......... 8,021 -- -- 8,021
Exercise of options on
Common Stock........ -- -- -- 878
Dividends declared:
$1.75 Preferred
Stock............. (7,000) -- -- (7,000)
Acquisition of Common
Stock in Treasury... -- 20,500 (369) (369)
--------- --------- ----------- --------------
Balance, March 28,
1996.................. 37,603 20,500 (369) 158,918
Net earnings.......... 18,995 -- -- 18,995
Exercise of options on
Common Stock........ -- -- -- 140
Preferred Stock
conversions......... -- -- -- --
Dividends declared:
$1.75 Preferred
Stock............. (5,993) -- -- (5,993)
Foreign currency
translation
adjustment.......... -- -- -- (2,048)
--------- --------- ----------- --------------
Balance, April 3,
1997.................. $ 50,605 20,500 $ (369) $ 170,012
--------- --------- ----------- --------------
--------- --------- ----------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
AMC Entertainment Inc. ("AMCE") is a holding company which, through its
direct and indirect subsidiaries, including American Multi-Cinema, Inc. ("AMC")
and its subsidiaries (collectively with AMCE, unless the context otherwise
requires, the "Company"), is principally involved in the operation of motion
picture theatres throughout the United States and in Japan and Portugal. The
Company is also involved in the business of providing on-screen advertising and
other services to AMC and other theatre circuits through a wholly-owned
subsidiary, National Cinema Network, Inc.
Approximately 78% of AMCE's outstanding voting securities are owned by
Durwood, Inc. ("DI"). See Note 12 for further description of AMCE's transactions
with DI.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of AMCE and all subsidiaries. All significant intercompany balances
and transactions have been eliminated.
FISCAL YEAR: The Company has a 52/53 week fiscal year ending on the
Thursday closest to the last day of March. The 1997 fiscal year reflects a 53
week period, fiscal years 1996 and 1995 each reflect a 52 week period. Fiscal
year 1998 will reflect a 52 week period.
REVENUES AND FILM RENTAL COSTS: Revenues are recognized when admissions and
concessions sales are received at the theatres. Film rental costs are recognized
based on the applicable box office receipts and the terms of the film licenses.
CASH AND EQUIVALENTS: Cash and equivalents consists of cash on hand and
temporary cash investments with original maturities of less than thirty days.
The Company invests excess cash in deposits with major banks and in temporary
cash investments. Such investments are made only in instruments issued or
enhanced by high quality financial institutions (investment grade or better).
Amounts invested in a single institution are limited to minimize risk. Under the
Company's cash management system, checks issued but not presented to banks
frequently result in overdraft balances for accounting purposes and are
classified within accounts payable in the balance sheet. The amount of these
checks included in accounts payable as of April 3, 1997 and March 28, 1996 was
$11,175,000 and $22,848,000, respectively.
INVESTMENTS: For purposes of determining gross realized gains and losses,
the cost of investment securities sold is determined upon specific
identification. Proceeds and gross realized gains from the sales in 1995 of
equity securities classified as other long-term assets as of March 31, 1994 were
$11,689,000 and $1,407,000, respectively.
REFUNDABLE CONSTRUCTION ADVANCES: Included in receivables as of April 3,
1997 and March 28, 1996 is $33,193,000 and $12,117,000, respectively, due from
developers to fund a portion of the
F-13
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
construction costs of new theatres that are to be operated by the Company
pursuant to lease agreements. These amounts are repaid by the developers either
during construction or shortly after completion.
PROPERTY: Property is recorded at cost. The Company uses the straight-line
method in computing depreciation and amortization for financial reporting
purposes and accelerated methods, with respect to certain assets, for income tax
purposes. The estimated useful lives are generally as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20 to 40 years
Leasehold improvements...................................... 5 to 25 years
Furniture, fixtures and equipment........................... 3 to 10 years
</TABLE>
Expenditures for additions (including interest during construction), major
renewals and betterments are capitalized, and expenditures for maintenance and
repairs are charged to expense as incurred. The cost of assets retired or
otherwise disposed of and the related accumulated depreciation are eliminated
from the accounts in the year of disposal. Gains or losses resulting from
property disposals are credited or charged to operations currently.
INTANGIBLE ASSETS: Intangible assets are recorded at cost and are comprised
of lease rights, which are amounts assigned to theatre leases assumed under
favorable terms, and location premiums on acquired theatres which are being
amortized on a straight-line basis over the estimated remaining useful life of
the theatre. Accumulated amortization on intangible assets was approximately
$41,690,000 and $36,035,000 as of April 3, 1997 and March 28, 1996,
respectively.
Effective December 30, 1994, the Company reduced the estimated lives of
lease rights and location premiums on certain smaller theatres to correspond to
the base terms of the theatre leases. This change in accounting estimate was
made to better match the estimated life of the intangible assets with the life
of the theatre due to the Company's strategic plans to primarily own and operate
larger theatres. The effect of this change in estimate was to increase
amortization expense in 1995 by $1,542,000 and decrease net earnings by
$876,000, or $.05 per share.
OTHER LONG-TERM ASSETS: Other long-term assets are comprised principally of
costs incurred in connection with the issuance of debt securities which are
being amortized over the respective life of the issue; investments in real
estate; investments in partnerships and corporate joint ventures accounted for
under the equity method; preopening costs relating to new theatres which are
being amortized over two years; and long-term deferred income taxes.
FOREIGN CURRENCY TRANSLATION: The financial statements of subsidiaries
outside the United States are generally measured using the local currency as the
functional currency. Assets and liabilities of these subsidiaries are translated
at the rates of exchange at the balance sheet date. Income and expense items are
translated at average rates of exchange. The resultant translation adjustments
are included in foreign currency translation adjustment, a separate component of
stockholders' equity. Gains and losses from foreign currency transactions of
these subsidiaries are included in net earnings and have not been material.
F-14
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: Income taxes are calculated in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), ACCOUNTING FOR INCOME
TAXES. The statement requires that deferred income taxes reflect the impact of
temporary differences between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
EARNINGS PER SHARE: Primary earnings per share is computed by dividing net
earnings for common shares by the sum of the weighted average number of common
shares outstanding and outstanding stock options, when their effect is dilutive.
The average shares used in the computations were 17,726,000 in 1997, 16,795,000
in 1996 and 16,593,000 in 1995. On a fully diluted basis, both net earnings and
shares outstanding are adjusted to assume the conversion of $1.75 Cumulative
Convertible Preferred Stock, if dilutive. The average shares used in the
computations were 17,940,000 in 1997, 17,031,000 in 1996 and 23,509,000 in 1995.
CHANGES IN ACCOUNTING PRINCIPLES: During fiscal 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. The Statement allows companies
to measure compensation cost in connection with employee stock compensation
plans using a fair value based method or to continue to use an intrinsic value
based method to account for stock options and awards. The Company has chosen to
continue using the intrinsic value based method while adopting the
disclosure-only provisions of the pronouncement.
During the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121"). This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used. In connection with the adoption of this Statement, the Company
reviewed the assets and related intangibles of its motion picture theatres for
impairment on a disaggregated basis. The expected future cash flows of certain
theatres, undiscounted and without interest charges, were less than the carrying
value of the assets. As a result, the Company recognized an impairment loss of
$1,799,000. The impairment loss represents the amount by which the carrying
value of the theatre assets, including intangibles, exceeded the estimated fair
value of those assets. The estimated fair value of assets was determined as the
present value of estimated expected future cash flows. The loss is included in
depreciation and amortization in the Consolidated Statements of Operations.
During fiscal 1997, the Company continued to review the assets and related
intangibles of its motion picture theatres for impairment in accordance with the
provisions of SFAS 121. As a result of expected declines in future cash flows of
certain theatres the Company recognized an impairment loss of $7,231,000 which
is included in depreciation and amortization in the Consolidated Statements of
Operations.
During fiscal 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER
SHARE. SFAS 128 eliminates the presentation of primary and fully diluted
earnings per share ("EPS") and requires presentation of basic and diluted EPS.
The principal difference between primary and basic EPS is that common stock
equivalents are not included with the weighted average number of shares
outstanding used in the computation of basic
F-15
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EPS. Diluted EPS is computed similarly to fully diluted EPS. SFAS 128 is
effective for periods ending after December 15, 1997, including interim periods,
and requires restatement of all prior-period EPS data. Early adoption is not
permitted. Management has not yet determined the impact that this statement will
have on the Company.
PRESENTATION: Certain amounts have been reclassified from prior period
consolidated financial statements to conform with the current year presentation.
NOTE 2--ACQUISITION
On January 10, 1997, the Company purchased the 20% minority interest in the
common stock of AMC Philadelphia, Inc., an 80% owned subsidiary, for $7,400,000
in cash. The acquisition has been accounted for using the purchase method of
accounting. The excess of the purchase price over the fair value of the assets
acquired is being amortized on a straight-line basis over the estimated useful
life of the assets acquired.
NOTE 3--PROPERTY
A summary of property is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Property owned:
Land............................................... $ 60,090 $ 35,610
Buildings and improvements......................... 221,396 146,061
Furniture, fixtures and equipment.................. 264,619 205,761
Leasehold improvements............................. 211,720 146,152
--------- ---------
757,825 533,584
Less--accumulated depreciation and amortization.... 246,476 213,654
--------- ---------
511,349 319,930
Property leased under capital leases:
Buildings.......................................... 66,074 67,274
Less--accumulated amortization..................... 34,365 31,719
--------- ---------
31,709 35,555
--------- ---------
$ 543,058 $ 355,485
--------- ---------
--------- ---------
</TABLE>
Included in property is $83,558,000 and $35,289,000 of construction in
progress as of April 3, 1997 and March 28, 1996, respectively.
F-16
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 4--OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Other current assets:
Prepaid rent......................................... $ 7,366 $ 6,412
Prepaid income taxes................................. -- 3,074
Deferred income taxes................................ 6,376 3,207
Other................................................ 3,027 2,486
--------- ---------
$ 16,769 $ 15,179
--------- ---------
--------- ---------
Other long-term assets:
Investments in real estate........................... $ 15,329 $ 6,922
Investments in partnerships and corporate joint
ventures........................................... 733 1,121
Deferred charges, net................................ 12,147 6,203
Deferred income taxes................................ 23,813 24,506
Preopening costs..................................... 6,519 2,636
Other................................................ 4,263 3,625
--------- ---------
$ 62,804 $ 45,013
--------- ---------
--------- ---------
Accrued expenses and other liabilities:
Taxes other than income.............................. $ 10,030 $ 7,110
Income taxes......................................... 6,017 --
Interest............................................. 1,512 841
Payroll and vacation................................. 4,982 6,149
Casualty claims and premiums......................... 4,655 2,034
Deferred income...................................... 8,911 11,634
Accrued bonus........................................ 3,974 7,634
Other................................................ 2,378 7,917
--------- ---------
$ 42,459 $ 43,319
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 5--CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS
A summary of corporate borrowings and capital lease obligations is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$425 million revolving Credit Facility due 2004....... $ 110,000 $ 120,000
11 7/8% Senior Notes due 2000......................... 615 614
9 1/2% Senior Subordinated Notes due 2009............. 198,940 --
12 5/8% Senior Subordinated Notes due 2002............ 4,882 4,878
Capital lease obligations, interest ranging from
7 1/4% to 20%....................................... 58,652 62,022
Other indebtedness.................................... 635 658
--------- ---------
Total................................................. 373,724 188,172
Less-current maturities............................... 3,441 2,904
--------- ---------
$ 370,283 $ 185,268
--------- ---------
--------- ---------
</TABLE>
On December 28, 1995, the Company completed the redemption of $99,383,000 of
its outstanding 11 7/8% Senior Notes due 2000 at a price of $1,117.90 per $1,000
principal amount and $95,096,000 of its outstanding 12 5/8% Senior Subordinated
Notes due 2002 at a price of $1,144.95 per $1,000 principal amount. In addition,
the terms of the Indentures governing the remaining Senior and Senior
Subordinated Notes were amended to eliminate certain restrictive covenants.
Sources of funds for the redemption were cash and investments on hand and
borrowings on a credit facility. Premiums paid to redeem the Senior and Senior
Subordinated Notes, together with the write-off of unamortized debt issue costs
and other costs directly related to the debt redemptions, resulted in an
extraordinary loss of $19,350,000, net of income tax benefit of $13,400,000. The
extraordinary loss reduced earnings per share by $1.15 for the year (52 weeks)
ended March 28, 1996.
As a part of the refinancing plan, the Company entered into a $425 million
credit facility (the "Credit Facility"), which was amended and restated as of
April 10, 1997. The Credit Facility permits borrowings at interest rates based
on either the bank's base rate or LIBOR and requires an annual commitment fee
based on margin ratios that could result in a rate of .1875% to .375% on the
unused portion of the commitment. The Credit Facility matures in 2004. The
commitment thereunder will reduce by $25 million on each of December 31, 2002,
March 31, 2003, June 30, 2003 and September 30, 2003 and by $50 million on
December 31, 2003. As of April 3, 1997, the Company had outstanding borrowings
of $110,000,000 under the Credit Facility at an average interest rate of 6.4%
per annum.
Covenants of the Credit Facility impose limitations on the incurrence of
additional indebtedness, creation of liens, change of control, transactions with
affiliates, mergers, investments, guaranties, asset sales, business activities
and pledges. The Company is also required to maintain certain financial
covenants, as defined in the Credit Facility. As of April 3, 1997, the Company
was in compliance with all financial covenants relating to the Credit Facility.
Prior to its April 10, 1997 amendment and restatement, the Credit Facility
contained a covenant that generally limited the Company's capital expenditures.
This covenant has been eliminated.
F-18
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 5--CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Costs related to the establishment of the Credit Facility were capitalized
and are charged to interest expense over the life of the Credit Facility.
Unamortized issuance costs of $2,821,000 as of April 3, 1997 are included in
other long-term assets.
On March 19, 1997, the Company sold $200 million of Senior Subordinated
Notes due 2009 (the "Notes"). The Notes bear interest at the rate of 9 1/2% per
annum, payable in March and September. The Notes are redeemable at the option of
the Company, in whole or in part, at any time on or after March 15, 2002 at
104.75% of the principal amount thereof, declining ratably to 100% of the
principal amount thereof on or after March 15, 2006, plus in each case interest
accrued to the redemption date. Upon a change of control (as defined in the Note
Indenture), each holder of the Notes will have the right to require the Company
to repurchase such holder's Notes at a price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase. The
Notes are subordinated to all existing and future senior indebtedness (as
defined in the Note Indenture) of the Company.
The Note Indenture contains certain covenants that, among other things,
restrict the ability of the Company and its subsidiaries to incur additional
indebtedness and pay dividends or make distributions in respect of their capital
stock. If the Notes attain "investment grade status" (as defined in the Note
Indenture), the covenants in the Note Indenture limiting the Company's ability
to incur additional indebtedness and pay dividends will cease to apply. As of
April 3, 1997, the Company was in compliance with all financial covenants
relating to the Note Indenture.
The Note Indenture also requires the Company to use its best efforts to
consummate a registered offer to exchange the Notes (the "Exchange Offer") for
notes of AMCE with terms identical in all material respects to the Notes or
cause a shelf registration statement with respect to the Notes to become
effective. In the event that certain filing deadlines as specified in the Note
Indenture are not met, the interest rate borne by the Notes could increase as
much as 1.0% per annum. The Company anticipates meeting its filing deadlines.
The discount on the Notes is being amortized to interest expense following
the interest method of amortization. Costs related to the issuance of the Notes
were capitalized and are charged to interest expense, following the interest
method, over the life of the securities. Unamortized issuance costs of
$4,572,000 as of April 3, 1997 are included in other long-term assets.
F-19
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 5--CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Minimum annual payments required under existing capital lease obligations
(net present value thereof) and maturities of corporate borrowings as of April
3, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASE OBLIGATIONS
-------------------------------------
MINIMUM NET
LEASE LESS PRESENT CORPORATE
PAYMENTS INTEREST VALUE BORROWINGS TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1998.................... $ 12,795 $ 9,380 $ 3,415 $ 26 $ 3,441
1999.................... 12,800 8,715 4,085 30 4,115
2000.................... 12,211 8,026 4,185 34 4,219
2001.................... 11,939 7,294 4,645 653 5,298
2002.................... 11,110 6,529 4,581 43 4,624
Thereafter.............. 70,161 32,420 37,741 314,286 352,027
----------- ----------- ----------- ----------- ---------
Total................. $ 131,016 $ 72,364 $ 58,652 $ 315,072 $ 373,724
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
The Company maintains a letter of credit in the normal course of its
business. The unused portion of the letter of credit was $2,378,000 as of April
3, 1997.
NOTE 6--STOCKHOLDERS' EQUITY
The authorized Common Stock of AMCE consists of two classes of stock. Except
for the election of directors, each holder of Common Stock (66 2/3 CENTS par
value; 45,000,000 shares authorized) is entitled to one vote per share, and each
holder of Class B Stock (66 2/3 CENTS par value; 30,000,000 shares authorized)
is entitled to 10 votes per share. Common stockholders voting as a class are
presently entitled to elect two of the seven members of AMCE's Board of
Directors with Class B stockholders electing the remainder.
Holders of the Company's stock have no pre-emptive or subscription rights
and there are no restrictions with respect to transferability. Holders of the
Common Stock have no conversion rights, but holders of Class B Stock may elect
to convert at any time on a share-for-share basis into Common Stock.
The Company has authorized 10,000,000 shares of Preferred Stock
(66 2/3 CENTS par value), of which 3,303,600 shares of $1.75 Cumulative
Convertible Preferred Stock (66 2/3 CENTS par value) (the "Convertible Preferred
Stock") are issued and outstanding. Dividends are payable quarterly at an annual
rate of $1.75 per share. The Convertible Preferred Stock has preference in
liquidation in the amount of $25 per share plus accrued and unpaid dividends.
The Convertible Preferred Stock is convertible at the option of the holder into
shares of Common Stock at a conversion price of $14.50 per share of Common
Stock, subject to change in certain events. In lieu of conversion the Company
may, at its option, pay to the holder cash equal to the then market value of the
Common Stock. The Company may redeem in whole or in part the Convertible
Preferred Stock at a redemption price beginning at $26.00 per share, declining
ratably to $25.00 per share after March 15, 2001.
F-20
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
During 1997, various holders of the Company's Convertible Preferred Stock
converted 696,400 shares into 1,200,589 shares of Common Stock at a conversion
rate of 1.724 shares of Common Stock for each share of Convertible Preferred
Stock.
STOCK-BASED COMPENSATION PLANS
In June 1983, AMCE adopted a stock option plan (the "1983 Plan") for
selected employees. This plan provided for the grant of rights to purchase
shares of Common Stock under both incentive and non-incentive stock option
agreements. The number of shares which could be sold under the plan could not
exceed 750,000 shares. The 1983 Plan provided that the exercise price could not
be less than the fair market value of the stock at the date of grant and
unexercised options expired no later than ten years after date of grant.
Pursuant to the terms of the 1983 Plan, no further options may be granted under
this plan.
In September 1984, AMCE adopted a non-qualified stock option plan (the "1984
Plan"). This plan provided for the grant of rights to purchase shares of Common
Stock under non-qualified stock option agreements. The number of shares which
could be sold under the plan could not exceed 750,000 shares. The 1984 Plan
provided that the exercise price would be determined by the Company's Stock
Option Committee and that the options expired no later than ten years after date
of grant. Pursuant to the terms of the 1984 Plan, no further options may be
granted under this plan.
In November 1994, AMCE adopted a stock option and incentive plan (the "1994
Plan"). This plan provides for three basic types of awards: (i) grants of stock
options which are either incentive or non-qualified stock options, (ii) grants
of stock awards, which may be either performance or restricted stock awards, and
(iii) performance unit awards. The number of shares of Common Stock which may be
sold or granted under the plan may not exceed 1,000,000 shares. The 1994 Plan
provides that the exercise price for stock options may not be less than the fair
market value of the stock at the date of grant and unexercised options expire no
later than ten years after date of grant. Options issued under the 1994 Plan
vest over two years from the date of issuance.
The Company has adopted the disclosure-only provisions of SFAS 123. As
permitted by SFAS 123, the Company has chosen to continue to account for
stock-based compensation using the intrinsic value method. Accordingly, no
compensation expense has been recognized for the Company's stock-based
compensation plans other than for performance-based stock awards. In 1997 and
1996, the Company granted to certain individuals stock awards which are issuable
at the end of a performance period ending April 2, 1998 based on certain
performance criteria. The number of shares which may be issued at the end of the
performance period ranges from zero to 216,000. The Company recognized
compensation expense for performance stock awards of $586,000 and $772,000 in
1997 and 1996, respectively. Had compensation expense for the Company's plans
been determined based on the fair value at the grant dates for stock options and
awards granted in 1997 and 1996, the Company's net earnings and net earnings for
common shares would have been different.
F-21
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
The pro forma amounts under SFAS 123 are indicated below (in thousands
except per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net earnings
As reported............................................ $ 18,995 $ 8,021
Pro forma.............................................. $ 18,664 $ 8,210
Net earnings per common share
As reported............................................ $ .74 $ .06
Pro forma.............................................. $ .72 $ .07
</TABLE>
The following table reflects the weighted average fair value per option
granted during the year, as well as the significant weighted average assumptions
used in determining fair value using the Black-Scholes option-pricing model:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Fair value on grant date.................................. $ 11.63 $ 6.96
Risk-free interest rate................................... 6.24% 5.64%
Expected life (years)..................................... 5 5
Expected volatility....................................... 42.9% 46.0%
Expected dividend yield................................... -- --
</TABLE>
F-22
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity under all plans is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
----------- --------------- ----------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year.......... 487,500 $ 9.67 776,500 $ 9.57 813,300 $ 9.29
Granted......... 103,250 $ 24.80 23,250 $ 14.50 36,500 $ 11.75
Canceled........ (17,250) $ 10.04 (229,750) $ 9.46 (33,750) $ 9.38
Exercised....... (15,000) $ 9.375 (82,500) $ 10.65 (39,550) $ 6.01
----------- ------- ----------- ------- ----------- -------
Outstanding at
end of year... 558,500 $ 12.47 487,500 $ 9.67 776,500 $ 9.57
----------- ------- ----------- ------- ----------- -------
----------- ------- ----------- ------- ----------- -------
Exercisable at
end of year... 365,875 $ 10.51 233,250 $ 9.45 230,000 $ 9.79
----------- ------- ----------- ------- ----------- -------
----------- ------- ----------- ------- ----------- -------
Available for
grant at end
of year....... 630,500 746,500 817,500
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following table summarizes information about stock options as of April
3, 1997:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
---------------------------------------------------- EXERCISABLE STOCK OPTIONS
WEIGHTED-AVERAGE --------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
- ----------------- ----------- ------------------ ------------------- ----------- -------------------
<C> <C> <S> <C> <C> <C>
$9.25 to $11.75 436,500 6.3 years $ 9.46 335,250 $ 9.51
$14.50 to $18.50 29,250 8.7 years $ 15.94 9,375 $ 14.50
$24.50 to $26.375 92,750 9.1 years $ 25.52 21,250 $ 24.50
----------- ---------- ------- ----------- -------
$9.25 to $26.375 558,500 6.9 years $ 12.47 365,875 $ 10.51
----------- ---------- ------- ----------- -------
----------- ---------- ------- ----------- -------
</TABLE>
F-23
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 7--INCOME TAXES
Income taxes reflected in the Consolidated Statements of Operations for the
three years ended April 3, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal....................................... $ 11,418 $ 5,134 $ 7,738
State......................................... 3,958 2,094 4,547
--------- --------- ---------
Total current............................... 15,376 7,228 12,285
Deferred:
Federal....................................... (2,114) (1,121) (1,238)
State......................................... (362) (207) (255)
Change in valuation allowance................. -- -- (19,792)
--------- --------- ---------
Total deferred.............................. (2,476) (1,328) (21,285)
--------- --------- ---------
Total provision................................. 12,900 5,900 (9,000)
Tax benefit of extraordinary
item--extinguishment of debt.................. -- 13,400 --
--------- --------- ---------
Total provision before extraordinary item....... $ 12,900 $ 19,300 $ (9,000)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effective tax rate on income before extraordinary items was 40.4%,
41.4%, and (36.0%) in 1997, 1996 and 1995, respectively. The difference between
the effective rate and the U.S. federal income tax statutory rate of 35% is
accounted for as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax on earnings before provision for income tax and
extraordinary item at statutory rates......................... $ 11,163 $ 16,335 $ 8,742
Add (subtract) tax effect of:
State income taxes, net of federal tax benefit................ 2,258 3,163 2,973
Change in valuation allowance................................. -- -- (19,792)
Other, net.................................................... (521) (198) (923)
--------- --------- ---------
Income tax provision............................................ $ 12,900 $ 19,300 $ (9,000)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 7--INCOME TAXES (CONTINUED)
The significant components of deferred income tax assets and liabilities as
of April 3, 1997 and March 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
DEFERRED INCOME TAX DEFERRED INCOME TAX
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
Accrued reserves and liabilities.................. $ 9,189 $ 179 $ 5,323 $ 343
<S> <C> <C> <C> <C>
Investments in partnerships....................... -- 495 -- 419
Capital lease obligations......................... 11,464 -- 10,852 --
Depreciation...................................... 5,587 -- 7,842 --
Deferred rents.................................... 6,254 -- 5,266 --
Other............................................. 550 2,181 683 1,491
--------- ----------- --------- -----------
Total............................................. 33,044 2,855 29,966 2,253
Less: Current deferred income taxes............... 6,586 210 3,702 495
--------- ----------- --------- -----------
Total noncurrent deferred income taxes............ $ 26,458 $ 2,645 $ 26,264 $ 1,758
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Net noncurrent deferred income taxes.............. $ 23,813 $ 24,506
--------- ---------
--------- ---------
</TABLE>
SFAS 109 requires that a valuation allowance be provided against deferred
tax assets if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. Based upon
positive earnings in recent years and the expectation that taxable income will
continue for the foreseeable future, management believes it is more likely than
not that the Company will realize its deferred tax assets and, accordingly, no
valuation allowance has been provided as of April 3, 1997 and March 28, 1996.
NOTE 8--LEASES
The majority of the Company's operations are conducted in premises occupied
under lease agreements with base terms ranging generally from 15 to 25 years,
with certain leases containing options to extend the leases for up to an
additional 20 years. The leases provide for fixed rentals and/or rentals based
on revenues with a guaranteed minimum. The Company also leases certain equipment
under leases expiring at various dates. The majority of the leases provide that
the Company will pay all, or substantially all, taxes, maintenance, insurance
and certain other operating expenses. Assets held under capital lease
obligations are included in property. Performance under some leases has been
guaranteed by DI.
F-25
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 8--LEASES (CONTINUED)
Following is a schedule, by year, of future minimum rental payments required
under existing operating leases that have initial or remaining non-cancellable
terms in excess of one year as of April 3, 1997 (in thousands):
<TABLE>
<S> <C>
1998........................................................... $ 68,551
1999........................................................... 69,070
2000........................................................... 68,406
2001........................................................... 66,388
2002........................................................... 63,748
Thereafter..................................................... 722,341
----------
Total minimum payments required.............................. $1,058,504
----------
----------
</TABLE>
The Company has entered into agreements to lease space for the operation of
theatres not yet fully constructed. The scheduled completion of construction and
theatre openings are at various dates during fiscal 1998. The future minimum
rental payments required under the terms of these leases total approximately
$429 million.
In addition, the Company entered into a master lease agreement during fiscal
1997 for three theatres with an expected cost of approximately $81 million.
Rental amounts will be based on the final construction costs of the theatres and
the lessor's cost of funds and will be finalized as the theatres open. The
initial lease term under the agreement will be three years. The master lease
agreement provides for a substantial residual value guarantee by the Company and
includes purchase and renewal options. The Company expects these leases to be
classified as operating leases.
The Company records rent expense on a straight-line basis over the term of
the lease. Included in long-term liabilities as of April 3, 1997 and March 28,
1996 is $16,278,000 and $12,858,000, respectively, of deferred rent representing
pro rata future minimum rental payments for leases with scheduled rent
increases.
Rent expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Minimum rentals................................ $ 80,670 $ 64,657 $ 59,790
Percentage rentals based on revenues........... 2,008 2,354 1,970
--------- --------- ---------
$ 82,678 $ 67,011 $ 61,760
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLANS
The Company sponsors a non-contributory defined benefit pension plan
covering, after a minimum of one year of employment, all employees age 21 or
older, who have completed 1,000 hours of service in their first twelve months of
employment or in a calendar year and who are not covered by a collective
bargaining agreement.
F-26
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
The plan calls for benefits to be paid to eligible employees at retirement
based primarily upon years of credited service with the Company (not exceeding
thirty-five) and the employee's highest five year average compensation.
Contributions to the plan reflect benefits attributed to employees' services to
date, as well as services expected to be earned in the future. Plan assets are
invested in a group annuity contract with an insurance company pursuant to which
the plan's benefits are paid to retired and terminated employees and the
beneficiaries of deceased employees.
The following table sets forth the plan's funded status as of December 31,
1996 and 1995 (plan valuation dates) and the amounts included in the
Consolidated Balance Sheets as of April 3, 1997 and March 28, 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation, including
vested benefits of $11,139 and $10,041................................. $ 11,309 $ 10,205
--------- ---------
--------- ---------
Projected benefit obligation for service rendered to date................ $ 18,489 $ 17,051
Plan assets at fair value................................................ (10,857) (9,580)
--------- ---------
Projected benefit obligation in excess of plan assets.................... 7,632 7,471
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions.................................. (686) (1,509)
Unrecognized net obligation upon adoption being recognized over 15
years.................................................................. (1,411) (1,588)
--------- ---------
Pension liability........................................................ $ 5,535 $ 4,374
--------- ---------
--------- ---------
</TABLE>
Net pension expense includes the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost....................................... $ 1,191 $ 855 $ 1,261
Interest cost...................................... 1,188 966 971
Actual return on plan assets....................... (1,218) (1,630) 55
Net amortization and deferral...................... 563 1,096 (190)
--------- --------- ---------
Net pension expense................................ $ 1,724 $ 1,287 $ 2,097
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company also sponsors a non-contributory Supplemental Executive
Retirement Plan (the "SERP") which provides certain employees additional pension
benefits. The actuarial present value of accumulated plan benefits related to
the SERP was $569,000 and $379,000 as of April 3, 1997 and March 28, 1996,
respectively, which is reflected in the Consolidated Balance Sheets.
The weighted average discount rate used to measure the plans' projected
benefit obligations was 7.0% for 1997 and 1996 and 7.75% in 1995. The rate of
increase in future compensation levels was 6.0% for 1997, 1996 and 1995 and the
expected long-term rate of return on assets was 8.5% for 1997, 1996 and 1995. A
limited number of employees are covered by collective bargaining agreements
under which payments are made to a union-administered fund.
F-27
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company sponsors a voluntary thrift savings plan covering the same
employees eligible for the pension plan. Since inception of the savings plan,
the Company has matched 50% of each eligible employee's elective contributions,
limited to 3% of the employee's salary.
The Company's expense under the thrift savings plan was $1,270,000,
$1,032,000 and $1,015,000 for 1997, 1996 and 1995, respectively.
The Company currently offers eligible retirees the opportunity to
participate in a health plan (medical and dental) and a life insurance plan.
Substantially all employees may become eligible for these benefits provided that
the employee must be at least 55 years of age and have 15 years of credited
service at retirement. The health plan is contributory, with retiree
contributions adjusted annually; the life insurance plan is noncontributory. The
accounting for the health plan anticipates future modifications to the
cost-sharing provisions to provide for retiree premium contributions of
approximately 20% of total premiums, increases in deductibles and co-insurance
at the medical inflation rate and coordination with Medicare. Retiree health and
life insurance plans are not funded. The Company is amortizing the transition
obligation on the straight-line method over a period of 20 years.
The following table sets forth the plans' accumulated postretirement benefit
obligation reconciled with the amounts included in the Consolidated Balance
Sheets as of April 3, 1997 and March 28, 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................. $ 618 $ 557
Fully eligible active plan participants.................................. 513 438
Other active plan participants........................................... 1,777 1,292
--------- ---------
Accumulated postretirement benefit obligation.............................. 2,908 2,287
Unrecognized net obligation upon adoption being recognized over 20 years... (697) (747)
Unrecognized gain (loss)................................................... (190) 105
--------- ---------
Postretirement benefit liability........................................... $ 2,021 $ 1,645
--------- ---------
--------- ---------
</TABLE>
Postretirement expense includes the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Service cost........................................... $ 199 $ 192 $ 188
Interest cost.......................................... 172 208 202
Net amortization and deferral.......................... 50 66 66
----- ----- -----
Postretirement expense................................. $ 421 $ 466 $ 456
----- ----- -----
----- ----- -----
</TABLE>
For measurement purposes, the annual rate of increase in the per capita cost
of covered health care benefits assumed for 1997 was 7.5% for medical and 4.75%
for dental. The rates were assumed to decrease gradually to 5.0% for medical and
3.0% for dental at 2020 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported.
Increasing
F-28
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
the assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of April 3,
1997 by $862,000 and the aggregate of the service and interest cost components
of postretirement expense for 1997 by $164,000. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
7.0% for 1997 and 1996 and 7.75% for 1995.
NOTE 10--CONTINGENCIES
The Company, in the normal course of business, is party to various legal
actions. Management believes that the potential exposure, if any, from such
matters would not have a material adverse effect on the financial condition,
cash flows or results of operations of the Company.
NOTE 11--FUTURE DISPOSITION OF ASSETS
The Company has provided reserves for estimated losses from discontinuing
the operation of fast food restaurants, for theatres which have been or are
expected to be closed and for other future dispositions of assets.
In conjunction with the opening of certain new theatres in fiscal 1986
through 1988, the Company expanded its food services by leasing additional space
adjacent to those theatres to operate specialty fast food restaurants. The
Company discontinued operating the restaurants due to unprofitability. The
Company continues to sub-lease or to convert to other uses the space leased for
these restaurants. The Company is obligated under long-term lease commitments
with remaining terms of up to eleven years. As of April 3, 1997, the base rents
aggregate approximately $779,000 annually, and $7,150,000 over the remaining
term of the leases. As of April 3, 1997, the Company has subleased approximately
55% of the space with remaining terms ranging from 2 months to 68 months.
Non-cancellable subleases currently aggregate approximately $496,000 annually,
and $4,216,000 over the remaining term of the subleases.
NOTE 12--TRANSACTIONS WITH DURWOOD, INC.
The Company and DI maintain intercompany accounts. Charges to the
intercompany accounts include the allocation of AMC general and administrative
expense of $116,000 in 1996 and 1995 and payments made by AMC on behalf of DI.
There were no general and administrative allocations in 1997. DI and non-AMCE
subsidiaries owed the Company $181,000 and $795,000 as of April 3, 1997 and
March 28, 1996, respectively.
The Board of Directors has approved an agreement (the "Merger Agreement")
providing for the Merger of the Company and DI, with the Company remaining as
the surviving entity. The Merger has been sought by members of the Durwood
family so that they may hold their interests in the Company directly instead of
indirectly through DI and a related entity. In the Merger, stockholders of DI
would exchange their shares of DI stock for shares of the Company's stock.
Although the outstanding shares of the Company's Common Stock will increase and
the outstanding shares of its Class B Stock will decrease if the Merger is
effected, no aggregate increase in total outstanding shares will occur because
the shares of the Company owned by DI will be canceled and the shares of the
Company held by other stockholders would not be exchanged in the Merger. A
condition to the Merger is that the Merger
F-29
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 12--TRANSACTIONS WITH DURWOOD, INC. (CONTINUED)
Agreement receive approval of the holders of a majority of the shares of Common
Stock other than DI, the Durwood family, their spouses and children and officers
and directors of the Company.
DI is primarily a holding company with no significant operations or assets
other than its equity interest in the Company. Management expects that the
Merger will be accounted for as a corporate reorganization and that,
accordingly, the recorded balances for consolidated assets, liabilities, total
stockholders' equity and results of operations of the Company would not be
affected. If the Merger occurs, the Company will be responsible for paying 50%
of its costs in connection with the Merger; the aggregate merger costs for both
the Company and DI are estimated to be approximately $2 million. Management does
not believe that the transaction will have a significant effect on the Company's
financial condition, liquidity or capital resources.
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it was practicable to estimate
that value.
The carrying value of cash and equivalents and investments in debt
securities approximates fair value because of the short duration of those
instruments. The fair value of publicly held corporate borrowings was based upon
quoted market prices. For other corporate borrowings, the fair value was based
upon rates available to the Company from bank loan agreements or rates based
upon the estimated premium over U.S. treasury notes with similar average
maturities.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and equivalents........... $ 24,715 $ 24,715 $ 10,795 $ 10,795
Financial liabilities:
Cash overdrafts................ $ 11,175 $ 11,175 $ 22,848 $ 22,848
Corporate borrowings........... 315,072 315,804 126,150 126,992
</TABLE>
F-30
<PAGE>
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS BY QUARTER
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 27, JUNE 29, SEPT. 26, SEPT. 28, DEC. 26, DEC. 28, APRIL 3, MARCH 28,
1996 1995 1996 1995 1996 1995 1997(3) 1996
--------- --------- ----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues............... $ 161,927 $ 153,409 $ 202,436 $ 184,482 $ 163,192 $ 154,970 $ 222,042 $ 163,111
Total cost of operations..... 132,821 118,738 155,593 135,497 130,464 118,252 161,124 118,871
General and administrative... 13,025 11,085 11,647 14,497 13,910 11,437 18,065 15,040
Depreciation and
amortization............... 11,674 9,972 12,740 10,471 13,129 10,399 22,260(2) 13,044(1)
--------- --------- ----------- ----------- --------- --------- --------- -----------
Operating income............. 4,407 13,614 22,456 24,017 5,689 14,882 20,593 16,156
Interest expense............. 4,909 8,309 4,852 8,318 5,275 7,883 6,986 4,318
Investment income............ 182 2,226 139 2,440 343 1,958 192 428
Gain (loss) on disposition of
assets..................... 18 (15) (49) (123) (53) 159 -- (243)
--------- --------- ----------- ----------- --------- --------- --------- -----------
Earnings (loss) before income
taxes and extraordinary
item....................... (302) 7,516 17,694 18,016 704 9,116 13,799 12,023
Income tax provision......... (125) 3,100 7,125 7,400 285 3,800 5,615 5,000
--------- --------- ----------- ----------- --------- --------- --------- -----------
Earnings (loss) before
extraordinary item......... (177) 4,416 10,569 10,616 419 5,316 8,184 7,023
Extraordinary item--Loss on
extinguishment of debt (net
of income tax benefit of
$13,400)................... -- -- -- -- -- (19,350) -- --
--------- --------- ----------- ----------- --------- --------- --------- -----------
Net earnings (loss).......... $ (177) $ 4,416 $ 10,569 $ 10,616 $ 419 $ (14,034) $ 8,184 $ 7,023
--------- --------- ----------- ----------- --------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- --------- -----------
Preferred dividends.......... 1,546 1,750 1,454 1,750 1,454 1,750 1,453 1,750
--------- --------- ----------- ----------- --------- --------- --------- -----------
Net earnings (loss) for
common shares.............. $ (1,723) $ 2,666 $ 9,115 $ 8,866 $ (1,035) $ (15,784) $ 6,731 $ 5,273
--------- --------- ----------- ----------- --------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- --------- -----------
Earnings (loss) per share
before extraordinary item:
Primary.................... $ (.10) $ .16 $ .51 $ .53 $ (.06) $ .21 $ .38 $ .31
--------- --------- ----------- ----------- --------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- --------- -----------
Fully diluted.............. $ (.10) $ .16 $ .44 $ .45 $ (.06) $ .21 $ .34 $ .29
--------- --------- ----------- ----------- --------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- --------- -----------
Earnings (loss) per share:
Primary.................... $ (.10) $ .16 $ .51 $ .53 $ (.06) $ (.93) $ .38 $ .31
--------- --------- ----------- ----------- --------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- --------- -----------
Fully diluted.............. $ (.10) $ .16 $ .44 $ .45 $ (.06) $ (.93) $ .34 $ .29
--------- --------- ----------- ----------- --------- --------- --------- -----------
--------- --------- ----------- ----------- --------- --------- --------- -----------
<CAPTION>
FISCAL YEAR
--------------------
1997(3) 1996
--------- ---------
<S> <C> <C>
Total revenues............... $ 749,597 $ 655,972
Total cost of operations..... 580,002 491,358
General and administrative... 56,647 52,059
Depreciation and
amortization............... 59,803 43,886
--------- ---------
Operating income............. 53,145 68,669
Interest expense............. 22,022 28,828
Investment income............ 856 7,052
Gain (loss) on disposition of
assets..................... (84) (222)
--------- ---------
Earnings (loss) before income
taxes and extraordinary
item....................... 31,895 46,671
Income tax provision......... 12,900 19,300
--------- ---------
Earnings (loss) before
extraordinary item......... 18,995 27,371
Extraordinary item--Loss on
extinguishment of debt (net
of income tax benefit of
$13,400)................... -- (19,350)
--------- ---------
Net earnings (loss).......... $ 18,995 $ 8,021
--------- ---------
--------- ---------
Preferred dividends.......... 5,907 7,000
--------- ---------
Net earnings (loss) for
common shares.............. $ 13,088 $ 1,021
--------- ---------
--------- ---------
Earnings (loss) per share
before extraordinary item:
Primary.................... $ .74 $ 1.21
--------- ---------
--------- ---------
Fully diluted.............. $ .73 $ 1.20
--------- ---------
--------- ---------
Earnings (loss) per share:
Primary.................... $ .74 $ .06
--------- ---------
--------- ---------
Fully diluted.............. $ .73 $ .06
--------- ---------
--------- ---------
</TABLE>
- --------------
(1) During the fourth quarter of 1996, the Company adopted Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
As a result, the Company recognized an impairment loss under SFAS 121 of
$1,799.
(2) During the fourth quarter of 1997, the Company recognized an impairment loss
under SFAS 121 of $7,231.
(3) Fiscal year 1997 consists of 53 weeks and the fiscal quarter ended April 3,
1997 consists of 14 weeks.
F-31
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited Condensed Pro Forma Statement of Operations and
Balance Sheet have been prepared giving effect to the Merger of Durwood, Inc.
("DI") with AMC Entertainment Inc. (the "Company"). The Condensed Pro Forma
Statement of Operations for the year (53 weeks) ended April 3, 1997 assumes that
the Merger occurred on March 29, 1996. The Condensed Pro Forma Financial Balance
Sheet assumes that the Merger occurred on April 3, 1997.
The unaudited Condensed Pro Forma Financial Statements do not purport to
represent DI's financial position or results of operations had the above
transaction in fact occurred on such dates.
The unaudited Condensed Pro Forma Financial Statements should be read in
conjunction with the historical financial statements of DI.
F-32
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR (53 WEEKS) ENDED APRIL 3, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DI PRO FORMA ADJUSTED
ACTUAL (1) ADJUSTMENTS DI
----------- ------------ -----------
<S> <C> <C> <C>
Revenues................................................................. $ 749,597 $ -- $ 749,597
Cost of operations....................................................... 580,002 -- 580,002
General and administrative............................................... 56,633 14(2) 56,647
Depreciation and amortization............................................ 59,447 356(2) 59,803
----------- ------------ -----------
Operating income....................................................... 53,515 (370) 53,145
Interest expense......................................................... 23,042 (1,020)(2) 22,022
Other income, net........................................................ 1,951 (1,179)(2) 772
----------- ------------ -----------
Earnings before income taxes and minority interest....................... 32,424 (529) 31,895
Income tax provision..................................................... 12,910 (10)(2) 12,900
----------- ------------ -----------
Earnings before minority interest........................................ 19,514 (519) 18,995
Minority interest........................................................ 9,084 -- 9,084
----------- ------------ -----------
Net earnings............................................................. $ 10,430 ($ 519) $ 9,911
----------- ------------ -----------
----------- ------------ -----------
Earnings per share:
Primary................................................................ $ 63.96 $ 60.74
----------- -----------
----------- -----------
Fully diluted.......................................................... $ 63.24 $ 60.01
----------- -----------
----------- -----------
Weighted average number of shares outstanding:
Primary................................................................ 161 161
----------- -----------
----------- -----------
Fully diluted.......................................................... 161 161
----------- -----------
----------- -----------
</TABLE>
See Notes to Condensed Pro Forma Financial Statements.
F-33
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
APRIL 3, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DI PRO FORMA ADJUSTED
ACTUAL (1) ADJUSTMENTS DI
----------- ------------ -----------
<S> <C> <C> <C>
Assets
Current assets......................................................... $ 85,396 $ (1,724)(2) $ 83,672
Property, net.......................................................... 539,984 3,074(2) 543,058
Intangible assets, net................................................. 28,679 -- 28,679
Other long-term assets................................................. 63,913 (1,109)(2) 62,804
----------- ------------ -----------
Total assets......................................................... $ 717,972 $ 241 $ 718,213
----------- ------------ -----------
----------- ------------ -----------
Liabilities and Stockholders' Equity
Current liabilities.................................................... $ 135,853 $ (1,586)(2) $ 135,267
1,000(3)
Corporate borrowings................................................... 315,046 315,046
Capital lease obligations.............................................. 55,237 -- 55,237
Other long-term liabilities............................................ 43,651 -- 43,651
----------- ------------ -----------
549,787 (586) 549,201
Minority interest...................................................... 102,015(4) (222)(3) 101,793
Stockholders' equity................................................... 66,170 1,827(2) 67,219
(778)(3)
----------- ------------ -----------
$ 717,972 $ 241 $ 718,213
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
See Notes to Condensed Pro Forma Financial Statements.
F-34
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONDENSED PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(1) The amounts presented hereunder were taken from DI's April 3, 1997
Consolidated Financial Statements.
(2) Prior to the Merger, certain pre-merger activities will take place whereby
all assets and liabilities of DI, other than DI's equity interest in the
Company, will be transferred to DI's subsidiary, Delta Properties, Inc.
("Delta"), which will agree to assume DI's liabilities. Delta's stock then
will be distributed to the DI shareholders.
(3) Represents expenses of the Company associated with the Merger. These
nonrecurring charges have not been reflected in the Condensed Pro Forma
Statement of Operations. Expenses of DI associated with the Merger are not
reflected in the Condensed Pro Forma Statement of Operations or Balance
Sheet as they represent expenses which will be paid prior to the pre-merger
activities described in Note (2) or if not paid, they represent obligations
of Mr. Stanley H. Durwood and Delta.
(4) Minority interest represents the liquidation value of the outstanding shares
of AMC Entertainment Inc. $1.75 Cumulative Convertible Preferred Stock at
the book value of the 3,942,018 shares of AMC Entertainment Inc. Common
Stock not owned by DI.
F-35
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT ACCOUNTANTS
YEAR (53 WEEKS) ENDED
APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996 AND MARCH 30, 1995
F-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Durwood, Inc.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Durwood,
Inc. and subsidiaries as of April 3, 1997 and March 28, 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year (53 weeks) ended April 3, 1997 and the years (52 weeks) ended March 28,
1996 and March 30, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Durwood, Inc.
and subsidiaries as of April 3, 1997 and March 28, 1996, and the consolidated
results of their operations and their cash flows for the year (53 weeks) ended
April 3, 1997 and the years (52 weeks) ended March 28, 1996 and March 30, 1995,
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Kansas City, Missouri
May 22, 1997
F-37
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenues
Admissions................................................ $ 492,951 $ 431,361 $ 371,145
Concessions............................................... 225,167 196,645 169,120
Other..................................................... 31,479 27,966 23,082
--------- --------- ---------
Total revenues.......................................... 749,597 655,972 563,347
Expenses
Film rentals.............................................. 247,199 215,099 182,669
Concession costs.......................................... 36,748 30,417 24,383
Other..................................................... 296,055 245,842 225,711
--------- --------- ---------
Total cost of operations................................ 580,002 491,358 432,763
General and administrative................................ 56,633 52,583 41,702
Depreciation and amortization............................. 59,447 43,537 37,569
--------- --------- ---------
Total expenses.......................................... 696,082 587,478 512,034
--------- --------- ---------
Operating income........................................ 53,515 68,494 51,313
Other expense (income)
Interest expense
Corporate borrowings.................................... 13,036 19,076 25,408
Capital lease obligations............................... 10,006 10,729 11,406
Investment income......................................... (2,035) (7,432) (10,838)
Loss on disposition of assets............................. 84 220 142
--------- --------- ---------
Earnings before income taxes, extraordinary item and
minority interest......................................... 32,424 45,901 25,195
Income tax provision........................................ 12,910 19,360 (10,160)
--------- --------- ---------
Earnings before extraordinary item and minority interest.... 19,514 26,541 35,355
Extraordinary item--Loss on extinguishment of debt (net of
income tax benefit of $13,400)............................ -- 19,350 --
--------- --------- ---------
Earnings before minority interest........................... 19,514 7,191 35,355
Minority interest........................................... 9,084 7,168 11,559
--------- --------- ---------
Net earnings................................................ $ 10,430 $ 23 $ 23,796
--------- --------- ---------
--------- --------- ---------
Earnings per share before extraordinary item:
Primary................................................... $ 63.96 $ 98.78 $ 146.65
--------- --------- ---------
--------- --------- ---------
Fully diluted............................................. $ 63.24 $ 97.34 $ 131.32
--------- --------- ---------
--------- --------- ---------
Earnings (loss) per share:
Primary................................................... $ 63.96 $ .05 $ 146.65
--------- --------- ---------
--------- --------- ---------
Fully diluted............................................. $ 63.24 $ (.02) $ 131.32
--------- --------- ---------
--------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-38
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 3, 1997 AND MARCH 28, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS
1997 1996
--------- ---------
<S> <C> <C>
Current assets:
Cash and equivalents................................................ $ 26,042 $ 12,888
Receivables, net of allowance for doubtful accounts of $704 as of
April 3, 1997 and $801 as of March 28, 1996....................... 42,585 19,866
Other current assets................................................ 16,769 13,697
--------- ---------
Total current assets.............................................. 85,396 46,451
Property, net......................................................... 539,984 352,055
Intangible assets, net................................................ 28,679 36,483
Other long-term assets................................................ 63,913 46,838
--------- ---------
Total assets...................................................... $ 717,972 $ 481,827
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 88,367 $ 59,353
Accrued expenses and other liabilities.............................. 44,045 43,409
Current maturities of corporate borrowings and capital lease
obligations....................................................... 3,441 2,904
--------- ---------
Total current liabilities......................................... 135,853 105,666
Corporate borrowings.................................................. 315,046 126,127
Capital lease obligations............................................. 55,237 59,141
Other long-term liabilities........................................... 43,651 33,696
--------- ---------
Total liabilities................................................. 549,787 324,630
Minority interest..................................................... 102,015 109,721
Commitments and contingencies
Stockholders' equity:
Common Stock, $100 par value; 120,000 shares issued and
outstanding....................................................... 12,000 12,000
Class B Stock, $100 par value; 40,784 shares issued and
outstanding....................................................... 4,078 4,078
Foreign currency translation adjustment............................. (1,596) --
Retained earnings................................................... 51,680 30,836
Unrealized gain on available for sale investments, net of income
taxes of $5 and $391.............................................. 8 562
--------- ---------
Total stockholders' equity........................................ 66,170 47,476
--------- ---------
Total liabilities and stockholders' equity........................ $ 717,972 $ 481,827
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
F-39
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND EQUIVALENTS
Cash Flows from Operating Activities:
Net earnings............................................... $ 10,430 $ 23 $ 23,796
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization............................ 59,447 43,537 37,570
Deferred income taxes.................................... (2,476) (1,328) (21,285)
Gain on sale of available for sale investments........... (1,094) -- (1,407)
Extraordinary item....................................... -- 19,350 --
Minority interest........................................ 3,091 168 4,326
Loss on sale of long-term assets......................... 84 220 142
Change in assets and liabilities:
Receivables............................................ (1,643) (530) 826
Other current assets................................... 96 11,134 (63)
Accounts payable....................................... 41,486 7,495 219
Accrued expenses and other liabilities................. 13,937 6,944 (6,081)
Other, net............................................... 2,860 2,985 410
--------- --------- ---------
Total adjustments.................................... 115,788 89,975 14,657
--------- --------- ---------
Net cash provided by operating activities.................. 126,218 89,998 38,453
--------- --------- ---------
Cash Flows from Investing Activities:
Capital expenditures....................................... (253,380) (120,796) (56,701)
Purchase of real estate investment......................... (7,692) -- --
Acquisition of minority interest........................... (7,400) -- --
Purchases of available for sale investments................ -- (424,134) (314,368)
Proceeds from maturities of available for sale
investments.............................................. -- 493,278 364,374
Proceeds from sales of available for sale investments...... 1,094 -- 11,689
Proceeds from disposition of long-term assets.............. 15,054 2,265 70
Net change in refundable construction advances............. (21,076) (10,394) (182)
Other, net................................................. (9,349) (7,217) (1,532)
--------- --------- ---------
Net cash provided by (used in) investing activities........ (282,749) (66,998) 3,350
--------- --------- ---------
Cash Flows from Financing Activities:
Net borrowings (repayments) under revolving credit
facility................................................. (10,000) 120,000 --
Proceeds from issuance of 9 1/2% Senior Subordinated
Notes.................................................... 198,938 -- --
Principal payments under capital lease obligations......... (2,835) (2,455) (2,088)
Repurchase of 11 7/8% Senior and 12 5/8% Senior
Subordinated Notes....................................... -- (220,734) --
Cash overdrafts............................................ (11,673) 22,848 --
Other repayments........................................... -- (448) (34)
Increase in minority interest from issuance of AMC
Entertainment Inc. common stock.......................... 69 637 100
Deferred financing costs and other......................... (4,595) (3,570) --
--------- --------- ---------
Net cash provided by (used in) financing activities........ 169,904 (83,722) (2,022)
--------- --------- ---------
Effect of exchange rate changes on cash and equivalents.... (219) -- --
--------- --------- ---------
Net increase (decrease) in cash and equivalents.............. 13,154 (60,722) 39,781
Cash and equivalents at beginning of year.................... 12,888 73,610 33,829
--------- --------- ---------
Cash and equivalents at end of year.......................... $ 26,042 $ 12,888 $ 73,610
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-40
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
(IN THOUSANDS)
Supplemental Schedule of Noncash Investing and Financing Activities:
During 1995, capital lease obligations of $1,363 were incurred in connection
with property acquired.
Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized of $3,344, $3,003 and $870)............. $ 25,208 $ 35,762 $ 36,784
Income taxes, net............................................................ 6,280 9,573 13,905
</TABLE>
See Notes to Consolidated Financial Statements.
F-41
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK CLASS B STOCK CURRENCY
---------------------- ------------------------ TRANSLATION RETAINED
SHARES AMOUNT SHARES AMOUNT ADJUSTMENT EARNINGS
--------- ----------- ----------- ----------- ------------- -----------
Balance, April 1, 1994........................ 120,000 $ 12,000 40,784 $ 4,078 $ -- $ 7,017
<S> <C> <C> <C> <C> <C> <C>
Net earnings................................ -- -- -- -- -- 23,796
--------- ----------- ----------- ----------- ------------- -----------
Balance, March 30, 1995....................... 120,000 12,000 40,784 4,078 -- 30,813
Net earnings................................ -- -- -- -- -- 23
Change in unrealized gain on available for
sale investments, net of income taxes of
$391...................................... -- -- -- -- -- --
--------- ----------- ----------- ----------- ------------- -----------
Balance, March 28, 1996....................... 120,000 12,000 40,784 4,078 -- 30,836
Net earnings................................ -- -- -- -- -- 10,430
Change in investment in AMC Entertainment
Inc. from conversion of preferred stock
into common stock......................... -- -- -- -- -- 10,414
Change in unrealized gain on available for
sale investments, net of income taxes of
$386...................................... -- -- -- -- -- --
Foreign currency translation adjustment..... -- -- -- -- (1,596) --
--------- ----------- ----------- ----------- ------------- -----------
Balance, April 3, 1997........................ 120,000 $ 12,000 40,784 $ 4,078 $ (1,596) $ 51,680
--------- ----------- ----------- ----------- ------------- -----------
--------- ----------- ----------- ----------- ------------- -----------
<CAPTION>
UNREALIZED GAIN TOTAL
ON AVAILABLE FOR STOCKHOLDERS'
SALE INVESTMENTS EQUITY
------------------- ---------------
Balance, April 1, 1994........................ $ -- $ 23,095
<S> <C> <C>
Net earnings................................ -- 23,796
------ ---------------
Balance, March 30, 1995....................... -- 46,891
Net earnings................................ -- 23
Change in unrealized gain on available for
sale investments, net of income taxes of
$391...................................... 562 562
------ ---------------
Balance, March 28, 1996....................... 562 47,476
Net earnings................................ -- 10,430
Change in investment in AMC Entertainment
Inc. from conversion of preferred stock
into common stock......................... -- 10,414
Change in unrealized gain on available for
sale investments, net of income taxes of
$386...................................... (554) (554)
Foreign currency translation adjustment..... -- (1,596)
------ ---------------
Balance, April 3, 1997........................ $ 8 $ 66,170
------ ---------------
------ ---------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-42
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Durwood, Inc. (the "Company" or "DI") is principally a holding company. Its
primary subsidiary, AMC Entertainment Inc. ("AMCE") through its wholly-owned
subsidiary, American Multi-Cinema, Inc. ("AMC"), is principally involved in the
operation of motion picture theatres throughout the United States and in Japan
and Portugal. AMCE is also involved in the business of providing on-screen
advertising and other services to AMC and other theatre circuits through a
wholly-owned subsidiary, National Cinema Network, Inc. Other subsidiaries of DI
are engaged in real estate and investment activities.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Although these estimates are based on
management's knowledge of current events and actions it may undertake in the
future, they may ultimately differ from actual results.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of DI and all subsidiaries, all of which are wholly-owned, except
AMCE in which the Company owns 77.8% and 83.5% of AMCE common stock as of April
3, 1997 and March 28, 1996, respectively. All significant intercompany balances
and transactions have been eliminated.
FISCAL YEAR: The Company has a 52/53 week fiscal year ending on the
Thursday closest to the last day of March. The 1997 fiscal year reflects a 53
week period, fiscal years 1996 and 1995 each reflect a 52 week period. Fiscal
year 1998 will reflect a 52 week period.
REVENUES AND FILM RENTAL COSTS: Revenues are recognized when admissions and
concessions sales are received at the theatres. Film rental costs are recognized
based on the applicable box office receipts and the terms of the film licenses.
CASH AND EQUIVALENTS: Cash and equivalents consists of cash on hand and
temporary cash investments with original maturities of less than thirty days.
The Company invests excess cash in deposits with major banks and in temporary
cash investments. Such investments are made only in instruments issued or
enhanced by high quality financial institutions (investment grade or better).
Amounts invested in a single institution are limited to minimize risk. Under the
Company's cash management system, checks issued but not presented to banks
frequently result in overdraft balances for accounting purposes and are
classified within accounts payable in the balance sheet. The amount of these
checks included in accounts payable as of April 3, 1997 and March 28, 1996 was
$11,175,000 and $22,848,000, respectively.
INVESTMENTS: Included in other long-term assets are marketable securities
which the Company classifies as available for sale. The difference between cost
and fair value, as adjusted for income taxes, is classified as an unrealized
gain in stockholders' equity.
For purposes of determining gross realized gains and losses, the cost of
securities sold is determined upon specific identification. Proceeds and gross
realized gains from the sale in 1997 of equity securities were $1,094,000.
Proceeds and gross realized gains from the sales in 1995 of equity securities
were $11,689,000 and $1,407,000, respectively.
F-43
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REFUNDABLE CONSTRUCTION ADVANCES: Included in receivables as of April 3,
1997 and March 28, 1996 is $33,193,000 and $12,117,000, respectively, due from
developers to fund a portion of the construction costs of new theatres that are
to be operated by AMCE pursuant to lease agreements. These amounts are repaid by
the developers either during construction or shortly after completion.
PROPERTY: Property is recorded at cost. The Company uses the straight-line
method in computing depreciation and amortization for financial reporting
purposes and accelerated methods, with respect to certain assets, for income tax
purposes. The estimated useful lives are generally as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 20 to 40 years
Leasehold improvements...................................... 5 to 25 years
Furniture, fixtures and equipment........................... 3 to 10 years
</TABLE>
Expenditures for additions (including interest during construction), major
renewals and betterments are capitalized, and expenditures for maintenance and
repairs are charged to expense as incurred. The cost of assets retired or
otherwise disposed of and the related accumulated depreciation are eliminated
from the accounts in the year of disposal. Gains or losses resulting from
property disposals are credited or charged to operations currently.
INTANGIBLE ASSETS: Intangible assets are recorded at cost and are comprised
of lease rights, which are amounts assigned to theatre leases assumed under
favorable terms, and location premiums on acquired theatres which are being
amortized on a straight-line basis over the estimated remaining useful life of
the theatre. Accumulated amortization on intangible assets was approximately
$41,690,000 and $36,035,000 as of April 3, 1997 and March 28, 1996,
respectively.
Effective December 30, 1994, AMCE reduced the estimated lives of lease
rights and location premiums on certain smaller theatres to correspond to the
base terms of the theatre leases. This change in accounting estimate was made to
better match the estimated life of the intangible assets with the life of the
theatre due to AMCE's strategic plans to primarily own and operate larger
theatres. The effect of this change in estimate was to increase amortization
expense in 1995 by $1,542,000 and decrease net earnings by $876,000, or $5.44
per share.
OTHER LONG-TERM ASSETS: Other long-term assets are comprised principally of
costs incurred in connection with the issuance of debt securities which are
being amortized over the respective life of the issue; investments in real
estate; investments in partnerships and corporate joint ventures accounted for
under the equity method; preopening costs relating to new theatres which are
being amortized over two years; and long-term deferred income taxes.
MINORITY INTEREST: Minority interest represents the 22.2% and 16.5%
separate public ownership of the common stock of AMCE as of April 3, 1997 and
March 28, 1996, respectively, and the 100% separate public ownership of the
preferred stock of AMCE. As of April 3, 1997 and March 28, 1996, minority
interest was comprised of $19,425,000 and $9,721,000, respectively, related to
the separate public ownership of the Common Stock of AMCE and $82,590,000 and
$100,000,000, respectively, related to the separate public ownership of the
preferred stock of AMCE.
F-44
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION: The financial statements of subsidiaries
outside the United States are generally measured using the local currency as the
functional currency. Assets and liabilities of these subsidiaries are translated
at the rates of exchange at the balance sheet date. Income and expense items are
translated at average rates of exchange. The resultant translation adjustments
are included in foreign currency translation adjustment, a separate component of
stockholders' equity. Gains and losses from foreign currency transactions of
these subsidiaries are included in net earnings and have not been material.
INCOME TAXES: Income taxes are calculated in accordance with Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), ACCOUNTING FOR INCOME
TAXES. The statement requires that deferred income taxes reflect the impact of
temporary differences between the amount of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
EARNINGS PER SHARE: Primary earnings per share is computed by dividing the
parent company net earnings plus the Company's proportionate interest in AMCE's
earnings for common shares by the weighted average number of common shares
outstanding. The average shares used in the computations were 161,000 in 1997,
1996 and 1995. On a fully-diluted basis, the Company's proportionate interest in
AMCE's earnings are adjusted to assume conversion of AMCE's $1.75 Cumulative
Convertible Preferred Stock, if dilutive. The average shares used in the
computations were 161,000 in 1997, 1996 and 1995.
CHANGES IN ACCOUNTING PRINCIPLES: During fiscal 1996, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. The Statement allows companies
to measure compensation cost in connection with employee stock compensation
plans using a fair value based method or to continue to use an intrinsic value
based method to account for stock options and awards. The Company has chosen to
continue using the intrinsic value based method while adopting the
disclosure-only provisions of the pronouncement.
During the fourth quarter of fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF ("SFAS 121"). This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used. In connection with the adoption of this Statement, the Company
reviewed the assets and related intangibles of its motion picture theatres for
impairment on a disaggregated basis. The expected future cash flows of certain
theatres, undiscounted and without interest charges, were less than the carrying
value of the assets. As a result, the Company recognized an impairment loss of
$1,799,000. The impairment loss represents the amount by which the carrying
value of the theatre assets, including intangibles, exceeded the estimated fair
value of those assets. The estimated fair value of assets was determined as the
present value of estimated expected future cash flows. The loss is included in
depreciation and amortization in the Consolidated Statements of Operations.
During fiscal 1997, the Company continued to review the assets and related
intangibles of its motion picture theatres for impairment in accordance with the
provisions of SFAS 121. As a result of expected declines in future cash flows of
certain theatres, the Company recognized an impairment loss of
F-45
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 1--THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$7,231,000 which is included in depreciation and amortization in the
Consolidated Statements of Operations.
During fiscal 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), EARNINGS PER
SHARE. SFAS 128 eliminates the presentation of primary and fully diluted
earnings per share ("EPS") and requires presentation of basic and diluted EPS.
The principal difference between primary and basic EPS is that common stock
equivalents are not included with the weighted average number of shares
outstanding used in the computation of basic EPS. Diluted EPS is computed
similarly to fully diluted EPS. SFAS 128 is effective for periods ending after
December 15, 1997, including interim periods, and requires restatement of all
prior-period EPS data. Early adoption is not permitted. Management has not yet
determined the impact that this statement will have on the Company.
PRESENTATION: Certain amounts have been reclassified from prior period
consolidated financial statements to conform with the current year presentation.
NOTE 2--ACQUISITION
On January 10, 1997, AMCE purchased the 20% minority interest in the common
stock of AMC Philadelphia, Inc., an 80% owned subsidiary, for $7,400,000 in
cash. The acquisition has been accounted for using the purchase method of
accounting. The excess of the purchase price over the fair value of the assets
acquired is being amortized on a straight-line basis over the estimated useful
life of the assets acquired.
NOTE 3--PROPERTY
A summary of property is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Property owned:
Land................................................ $ 59,153 $ 34,673
Buildings and improvements.......................... 214,951 139,616
Furniture, fixtures and equipment................... 264,619 205,761
Leasehold improvements.............................. 211,732 146,164
--------- ---------
750,455 526,214
Less--accumulated depreciation and amortization..... 242,180 209,714
--------- ---------
508,275 316,500
Property leased under capital leases:
Buildings........................................... 66,074 67,274
Less--accumulated amortization...................... 34,365 31,719
--------- ---------
31,709 35,555
--------- ---------
$ 539,984 $ 352,055
--------- ---------
--------- ---------
</TABLE>
F-46
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 3--PROPERTY (CONTINUED)
Included in property is $83,558,000 and $35,289,000 of construction in
progress as of April 3, 1997 and March 28, 1996, respectively.
NOTE 4--OTHER ASSETS AND LIABILITIES
Other assets and liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Other current assets:
Prepaid rent........................................... $ 7,366 $ 6,412
Prepaid income taxes................................... -- 1,592
Deferred income taxes.................................. 6,376 3,207
Other.................................................. 3,027 2,486
--------- ---------
$ 16,769 $ 13,697
--------- ---------
--------- ---------
Other long-term assets:
Investments in real estate............................. $ 15,329 $ 6,922
Investments in partnerships and corporate joint
ventures............................................. 733 1,208
Deferred charges, net.................................. 12,147 6,203
Deferred income taxes.................................. 23,808 24,115
Preopening costs....................................... 6,519 2,636
Available for sale investments......................... 16 956
Other.................................................. 5,361 4,798
--------- ---------
$ 63,913 $ 46,838
--------- ---------
--------- ---------
Accrued expenses and other liabilities:
Taxes other than income................................ $ 10,030 $ 7,110
Income taxes........................................... 7,514 --
Interest............................................... 1,512 841
Payroll and vacation................................... 4,982 6,149
Casualty claims and premiums........................... 4,655 2,034
Deferred income........................................ 8,911 11,634
Accrued bonus.......................................... 3,974 7,634
Other.................................................. 2,467 8,007
--------- ---------
$ 44,045 $ 43,409
--------- ---------
--------- ---------
</TABLE>
F-47
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 5--CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS
A summary of corporate borrowings and capital lease obligations is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
$425 million revolving Credit Facility due 2004....................... $ 110,000 $ 120,000
11 7/8% Senior Notes due 2000......................................... 615 614
9 1/2% Senior Subordinated Notes due 2009............................. 198,940 --
12 5/8% Senior Subordinated Notes due 2002............................ 4,882 4,878
Capital lease obligations, interest ranging from 7 1/4% to 20%........ 58,652 62,022
Other indebtedness.................................................... 635 658
--------- ---------
Total................................................................. 373,724 188,172
Less-current maturities............................................... 3,441 2,904
--------- ---------
$ 370,283 $ 185,268
--------- ---------
--------- ---------
</TABLE>
On December 28, 1995, AMCE completed the redemption of $99,383,000 of its
outstanding 11 7/8% Senior Notes due 2000 at a price of $1,117.90 per $1,000
principal amount and $95,096,000 of its outstanding 12 5/8% Senior Subordinated
Notes due 2002 at a price of $1,144.95 per $1,000 principal amount. In addition,
the terms of the Indentures governing the remaining Senior and Senior
Subordinated Notes were amended to eliminate certain restrictive covenants.
Sources of funds for the redemption were cash and investments on hand and
borrowings on a credit facility. Premiums paid to redeem the Senior and Senior
Subordinated Notes, together with the write-off of unamortized debt issue costs
and other costs directly related to the debt redemptions, resulted in an
extraordinary loss of $19,350,000, net of income tax benefit of $13,400,000. The
extraordinary loss reduced earnings per share by $98.73 for the year (52 weeks)
ended March 28, 1996.
As a part of the refinancing plan, AMCE entered into a $425 million credit
facility (the "Credit Facility"), which was amended and restated as of April 10,
1997. The Credit Facility permits borrowings at interest rates based on either
the bank's base rate or LIBOR and requires an annual commitment fee based on
margin ratios that could result in a rate of .1875% to .375% on the unused
portion of the commitment. The Credit Facility matures in 2004. The commitment
thereunder will reduce by $25 million on each of December 31, 2002, March 31,
2003, June 30, 2003 and September 30, 2003 and by $50 million on December 31,
2003. As of April 3, 1997, AMCE had outstanding borrowings of $110,000,000 under
the Credit Facility at an average interest rate of 6.4% per annum.
Covenants of the Credit Facility impose limitations on the incurrence of
additional indebtedness, creation of liens, change of control, transactions with
affiliates, mergers, investments, guaranties, asset sales, business activities
and pledges. AMCE is also required to maintain certain financial covenants, as
defined in the Credit Facility. As of April 3, 1997, AMCE was in compliance with
all financial covenants relating to the Credit Facility.
Prior to its April 10, 1997 amendment and restatement, the Credit Facility
contained a covenant that generally limited AMCE's capital expenditures. This
covenant has been eliminated.
F-48
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 5--CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Costs related to the establishment of the Credit Facility were capitalized
and are charged to interest expense over the life of the Credit Facility.
Unamortized issuance costs of $2,821,000 as of April 3, 1997 are included in
other long-term assets.
On March 19, 1997, AMCE sold $200 million of Senior Subordinated Notes due
2009 (the "Notes"). The Notes bear interest at the rate of 9 1/2% per annum,
payable in March and September. The Notes are redeemable at the option of AMCE,
in whole or in part, at any time on or after March 15, 2002 at 104.75% of the
principal amount thereof, declining ratably to 100% of the principal amount
thereof on or after March 15, 2006, plus in each case interest accrued to the
redemption date. Upon a change of control (as defined in the Note Indenture),
each holder of the Notes will have the right to require AMCE to repurchase such
holder's Notes at a price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. The Notes are
subordinated to all existing and future senior indebtedness (as defined in the
Note Indenture) of AMCE.
The Note Indenture contains certain covenants that, among other things,
restrict the ability of AMCE and its subsidiaries to incur additional
indebtedness and pay dividends or make distributions in respect of their capital
stock. If the Notes attain "investment grade status" (as defined in the Note
Indenture), the covenants in the Note Indenture limiting AMCE's ability to incur
additional indebtedness and pay dividends will cease to apply. As of April 3,
1997, AMCE was in compliance with all financial covenants relating to the Note
Indenture.
The Note Indenture also requires AMCE to use its best efforts to consummate
a registered offer to exchange the Notes (the "Exchange Offer") for notes of
AMCE with terms identical in all material respects to the Notes or cause a shelf
registration statement with respect to the Notes to become effective. In the
event that certain filing deadlines as specified in the Note Indenture are not
met, the interest rate borne by the Notes could increase as much as 1.0% per
annum. AMCE anticipates meeting its filing deadlines.
The discount on the Notes is being amortized to interest expense following
the interest method of amortization. Costs related to the issuance of the Notes
were capitalized and are charged to interest expense, following the interest
method, over the life of the securities. Unamortized issuance costs of
$4,572,000 as of April 3, 1997 are included in other long-term assets.
F-49
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 5--CORPORATE BORROWINGS AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Minimum annual payments required under existing capital lease obligations
(net present value thereof) and maturities of corporate borrowings as of April
3, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASE OBLIGATIONS
-------------------------------------
MINIMUM NET
LEASE LESS PRESENT CORPORATE
PAYMENTS INTEREST VALUE BORROWINGS TOTAL
----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1998.............................. $ 12,795 $ 9,380 $ 3,415 $ 26 $ 3,441
1999.............................. 12,800 8,715 4,085 30 4,115
2000.............................. 12,211 8,026 4,185 34 4,219
2001.............................. 11,939 7,294 4,645 653 5,298
2002.............................. 11,110 6,529 4,581 43 4,624
Thereafter........................ 70,161 32,420 37,741 314,286 352,027
----------- ----------- ----------- -------------- -----------
Total....................... $ 131,016 $ 72,364 $ 58,652 $ 315,072 $ 373,724
----------- ----------- ----------- -------------- -----------
----------- ----------- ----------- -------------- -----------
</TABLE>
The Company maintains a letter of credit in the normal course of its
business. The unused portion of the letter of credit was $2,378,000 as of April
3, 1997.
NOTE 6--STOCKHOLDERS' EQUITY
CAPITAL STOCK
The authorized capital stock of Durwood, Inc. consists of two classes of
stock. The Class A Common Stock (the "Common Stock") has a $100 par value with
150,000 shares authorized of which 120,000 shares are issued and outstanding.
The Class B Common Stock (the "Class B Stock") has a $100 par value with 50,000
shares authorized of which 40,784 shares are issued and outstanding. Both
classes of stock are entitled to one vote per share.
The Common Stock has preference as to dividends and liquidation. Annual
dividends are first paid on the Common Stock up to $25.50 per share before any
dividends are declared on the Class B Stock. If payment of dividends on the
Class B Stock reaches $25.50 per share, further dividends may be declared on the
Common Stock up to $19.50 per share before further dividends are paid on the
Class B Stock.
The Common Stock is entitled to receive $255 per share in the event of
liquidation (after payment of declared dividends) before any liquidating
distribution is made on the Class B Stock. If the liquidating distribution
reaches $255 per share on the Class B Stock, the Common Stock is entitled to
receive any remaining distributions up to another $195 per share. Afterward, any
remaining assets are distributed to holders of Class B Stock.
The Common Stock cannot be redeemed or purchased by the Company during the
lifetime of Stanley H. Durwood (President and sole Director of Durwood, Inc.),
thereafter, it can be redeemed or purchased by the Company at a price which
approximates its maximum liquidation value. The Class B Stock is nonredeemable.
F-50
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
CUMULATIVE CONVERTIBLE PREFERRED STOCK OF SUBSIDIARY
AMCE has authorized 10,000,000 shares of Preferred Stock (66 2/3 CENTS par
value), of which 3,303,600 shares of $1.75 Cumulative Convertible Preferred
Stock (66 2/3 CENTS par value) (the "Convertible Preferred Stock") are issued
and outstanding. Dividends are payable quarterly at an annual rate of $1.75 per
share. The Convertible Preferred Stock has preference in liquidation in the
amount of $25 per share plus accrued and unpaid dividends. The Convertible
Preferred Stock is convertible at the option of the holder into shares of AMCE
Common Stock at a conversion price of $14.50 per share of AMCE Common Stock,
subject to change in certain events. In lieu of conversion AMCE may, at its
option, pay to the holder cash equal to the then market value AMCE Common Stock.
AMCE may redeem in whole or in part the Convertible Preferred Stock at a
redemption price beginning at $26.00 per share, declining ratably to $25.00 per
share after March 15, 2001.
During 1997, various holders of AMCE's Convertible Preferred Stock converted
696,400 shares into 1,200,589 shares of AMCE Common Stock at a conversion rate
of 1.724 shares of AMCE Common Stock for each share of AMCE Convertible
Preferred Stock. The conversions reduced minority interest which resulted in an
increase in the equity of the Company of $10,414,000.
STOCK-BASED COMPENSATION PLANS
The Company's primary subsidiary, AMCE, offers various stock option and
incentive plans as discussed below.
In June 1983, AMCE adopted a stock option plan (the "1983 Plan") for
selected employees. This plan provided for the grant of rights to purchase
shares of AMCE Common Stock under both incentive and non-incentive stock option
agreements. The number of shares which could be sold under the plan could not
exceed 750,000 shares. The 1983 Plan provided that the exercise price could not
be less than the fair market value of the stock at the date of grant and
unexercised options expired no later than ten years after date of grant.
Pursuant to the terms of the 1983 Plan, no further options may be granted under
this plan.
In September 1984, AMCE adopted a non-qualified stock option plan (the "1984
Plan"). This plan provided for the grant of rights to purchase shares of AMCE
Common Stock under non-qualified stock option agreements. The number of shares
which could be sold under the plan could not exceed 750,000 shares. The 1984
Plan provided that the exercise price would be determined by AMCE's Stock Option
Committee and that the options expired no later than ten years after date of
grant. Pursuant to the terms of the 1984 Plan, no further options may be granted
under this plan.
In November 1994, AMCE adopted a stock option and incentive plan (the "1994
Plan"). This plan provides for three basic types of awards: (i) grants of stock
options which are either incentive or non-qualified stock options, (ii) grants
of stock awards, which may be either performance or restricted stock awards, and
(iii) performance unit awards. The number of shares of AMCE Common Stock which
may be sold or granted under the plan may not exceed 1,000,000 shares. The 1994
Plan provides that the exercise price for stock options may not be less than the
fair market value of the stock at the date of grant and unexercised options
expire no later than ten years after date of grant. Options issued under the
1994 Plan vest over two years from the date of issuance.
F-51
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS 123. As
permitted by SFAS 123, the Company has chosen to continue to account for
stock-based compensation using the intrinsic value method. Accordingly, no
compensation expense has been recognized for AMCE's stock-based compensation
plans other than for performance-based stock awards. In 1997 and 1996, AMCE
granted to certain individuals stock awards which are issuable at the end of a
performance period ending April 2, 1998 based on certain performance criteria.
The number of shares which may be issued at the end of the performance period
ranges from zero to 216,000. AMCE recognized compensation expense for
performance stock awards of $586,000 and $772,000 in 1997 and 1996,
respectively. Had compensation expense for AMCE's plans been determined based on
the fair value at the grant dates for stock options and awards granted in 1997
and 1996, the Company's net earnings and earnings per share would have been
different.
The pro forma amounts under SFAS 123 for the Company are indicated below (in
thousands except per share amounts):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net earnings
As reported.............................................. $ 10,430 $ 23
Pro forma................................................ $ 10,180 $ 181
Net earnings per common share
As reported.............................................. $ 63.96 $ .05
Pro forma................................................ $ 62.42 $ 1.02
</TABLE>
The following table reflects the weighted average fair value per option
granted during the year, as well as the significant weighted average assumptions
used in determining fair value using the Black-Scholes option-pricing model for
options on AMCE Common Stock:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Fair value on grant date.................................... $ 11.63 $ 6.96
Risk-free interest rate..................................... 6.24% 5.64%
Expected life (years)....................................... 5 5
Expected volatility......................................... 42.9% 46.0%
Expected dividend yield..................................... -- --
</TABLE>
F-52
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 6--STOCKHOLDERS' EQUITY (CONTINUED)
A summary of stock option activity under all AMCE plans is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------- --------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE NUMBER EXERCISE PRICE
OF SHARES PER SHARE OF SHARES PER SHARE OF SHARES PER SHARE
----------- --------------- ---------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.... 487,500 $ 9.67 776,500 $ 9.57 813,300 $ 9.29
Granted............................. 103,250 $ 24.80 23,250 $ 14.50 36,500 $ 11.75
Canceled............................ (17,250) $ 10.04 (229,750) $ 9.46 (33,750) $ 9.38
Exercised........................... (15,000) $ 9.375 (82,500) $ 10.65 (39,550) $ 6.01
----------- ------- ---------- ------- ----------- -------
Outstanding at end of year.......... 558,500 $ 12.47 487,500 $ 9.67 776,500 $ 9.57
----------- ------- ---------- ------- ----------- -------
----------- ------- ---------- ------- ----------- -------
Exercisable at end of year.......... 365,875 $ 10.51 233,250 $ 9.45 230,000 $ 9.79
----------- ------- ---------- ------- ----------- -------
----------- ------- ---------- ------- ----------- -------
Available for grant at end of
year.............................. 630,500 746,500 817,500
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
The following table summarizes information about stock options as of April
3, 1997:
<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS
--------------------------------------------------- EXERCISABLE STOCK OPTIONS
WEIGHTED-AVERAGE -------------------------------
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE
EXERCISE PRICES OF SHARES CONTRACTUAL LIFE EXERCISE PRICE OF SHARES EXERCISE PRICE
- ------------------------------- ----------- ------------------ ------------------ ----------- ------------------
<C> <C> <S> <C> <C> <C>
$9.25 to $11.75 436,500 6.3 years $ 9.46 335,250 $ 9.51
$14.50 to $18.50 29,250 8.7 years $ 15.94 9,375 $ 14.50
$24.50 to $26.375 92,750 9.1 years $ 25.52 21,250 $ 24.50
----------- ---------- ------- ----------- -------
$9.25 to $26.375 558,500 6.9 years $ 12.47 365,875 $ 10.51
----------- ---------- ------- ----------- -------
----------- ---------- ------- ----------- -------
</TABLE>
F-53
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 7--INCOME TAXES
Income taxes reflected in the Consolidated Statements of Operations for the
three years ended April 3, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal..................................................... $ 11,423 $ 5,194 $ 6,563
State....................................................... 3,963 2,094 4,562
--------- --------- ---------
Total current............................................. 15,386 7,288 11,125
Deferred:
Federal..................................................... (1,909) (1,429) (1,957)
State....................................................... (312) (271) (300)
Change in valuation allowance............................... (255) 372 (19,028)
--------- --------- ---------
Total deferred............................................ (2,476) (1,328) (21,285)
--------- --------- ---------
Total provision............................................... 12,910 5,960 (10,160)
Tax benefit of extraordinary item--extinguishment of debt..... -- 13,400 --
--------- --------- ---------
Total provision before extraordinary item..................... $ 12,910 $ 19,360 $ (10,160)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The effective tax rate on income before extraordinary item and minority
interest was 39.8%, 42.2% and (40.3%) in 1997, 1996 and 1995, respectively. The
difference between the effective rate and the U.S. federal income tax statutory
rate of 35% is accounted for as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax on earnings before provision for income tax, extraordinary
item and minority interest at statutory rates............... $ 11,348 $ 16,065 $ 8,818
Add (subtract) tax effect of:
State income taxes, net of federal tax benefit.............. 2,274 3,118 2,983
Change in valuation allowance............................... (255) 372 (19,028)
Income tax credits.......................................... -- -- (1,282)
Other, net.................................................. (457) (195) (1,651)
--------- --------- ---------
Income tax provision.......................................... $ 12,910 $ 19,360 $ (10,160)
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-54
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 7--INCOME TAXES (CONTINUED)
The significant components of deferred income tax assets and liabilities as
of April 3, 1997 and March 28, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
DEFERRED INCOME DEFERRED INCOME
TAX TAX
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Accrued reserves and liabilities.................. $ 9,189 $ 179 $ 5,323 $ 343
Investments in partnerships....................... -- 495 -- 419
Capital lease obligations......................... 11,464 -- 10,852 --
Depreciation...................................... 5,587 -- 7,842 --
Deferred rents.................................... 6,254 -- 5,266 --
Tax credits carryforwards......................... 513 -- 619 --
State net operating loss carryforwards............ 864 -- 868 --
Other............................................. 1,811 2,186 2,089 1,882
--------- ----------- --------- -----------
Total............................................. 35,682 2,860 32,859 2,644
Less: Valuation allowance......................... 2,638 -- 2,893 --
--------- ----------- --------- -----------
Net............................................... 33,044 2,860 29,966 2,644
Less: Current deferred income taxes............... 6,586 210 3,702 495
--------- ----------- --------- -----------
Total noncurrent deferred income taxes............ $ 26,458 $ 2,650 $ 26,264 $ 2,149
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Net noncurrent deferred income taxes.............. $ 23,808 $ 24,115
--------- ---------
--------- ---------
</TABLE>
SFAS 109 requires that a valuation allowance be provided against deferred
tax assets if, based on the weight of available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized. As of
April 3, 1997 and March 28, 1996, management believed it was more likely than
not that certain deferred tax assets related to tax credit carryforwards and
certain future deductible amounts would not be realized due to uncertainties as
to the timing and amounts of future taxable income. Accordingly, a valuation
allowance of $2,638,000 and $2,893,000 was established related to the deferred
tax assets of DI as of April 3, 1997 and March 28, 1996, respectively. Based
upon positive earnings of AMCE in recent years and the expectation that taxable
income will continue for the foreseeable future, management believes it is more
likely than not that AMCE will realize its deferred tax assets and, accordingly,
no valuation allowance has been provided as of April 3, 1997 and March 28, 1996,
for AMCE's deferred tax assets.
NOTE 8--LEASES
The majority of the Company's operations are conducted in premises occupied
under lease agreements with base terms ranging generally from 15 to 25 years,
with certain leases containing options to extend the leases for up to an
additional 20 years. The leases provide for fixed rentals and/or rentals based
on revenues with a guaranteed minimum. The Company also leases certain equipment
under leases expiring at various dates. The majority of the leases provide that
the Company will pay all, or
F-55
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 8--LEASES (CONTINUED)
substantially all, taxes, maintenance, insurance and certain other operating
expenses. Assets held under capital lease obligations are included in property.
Following is a schedule, by year, of future minimum rental payments required
under existing operating leases that have initial or remaining non-cancellable
terms in excess of one year as of April 3, 1997 (in thousands):
<TABLE>
<S> <C>
1998........................................................... $ 68,551
1999........................................................... 69,070
2000........................................................... 68,406
2001........................................................... 66,388
2002........................................................... 63,748
Thereafter..................................................... 722,341
----------
Total minimum payments required................................ $1,058,504
----------
----------
</TABLE>
The Company has entered into agreements to lease space for the operation of
theatres not yet fully constructed. The scheduled completion of construction and
theatre openings are at various dates during fiscal 1998. The future minimum
rental payments required under the terms of these leases total approximately
$429 million.
In addition, the Company entered into a master lease agreement during fiscal
1997 for three theatres with an expected cost of approximately $81 million.
Rental amounts will be based on the final construction costs of the theatres and
the lessor's cost of funds and will be finalized as the theatres open. The
initial lease term under the agreement will be three years. The master lease
agreement provides for a substantial residual value guarantee by the Company and
includes purchase and renewal options. The Company expects these leases to be
classified as operating leases.
The Company records rent expense on a straight-line basis over the term of
the lease. Included in long-term liabilities as of April 3, 1997 and March 28,
1996 is $16,278,000 and $12,858,000, respectively, of deferred rent representing
pro rata future minimum rental payments for leases with scheduled rent
increases.
Rent expense is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Minimum rentals................................ $ 80,670 $ 64,657 $ 59,790
Percentage rentals based on revenues........... 2,008 2,354 1,970
--------- --------- ---------
$ 82,678 $ 67,011 $ 61,760
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 9--EMPLOYEE BENEFIT PLANS
Employees of the Company are included in the benefit plans offered to AMC
employees. Descriptions of these plans are discussed below.
F-56
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
AMC sponsors a non-contributory defined benefit pension plan covering, after
a minimum of one year of employment, all employees age 21 or older, who have
completed 1,000 hours of service in their first twelve months of employment or
in a calendar year and who are not covered by a collective bargaining agreement.
The plan calls for benefits to be paid to eligible employees at retirement
based primarily upon years of credited service (not exceeding thirty-five) and
the employee's highest five year average compensation. Contributions to the plan
reflect benefits attributed to employees' services to date, as well as services
expected to be earned in the future. Plan assets are invested in a group annuity
contract with an insurance company pursuant to which the plan's benefits are
paid to retired and terminated employees and the beneficiaries of deceased
employees.
The following table sets forth the plan's funded status as of December 31,
1996 and 1995 (plan valuation dates) and the amounts included in the
Consolidated Balance Sheets as of April 3, 1997 and March 28, 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation, including
vested benefits of $11,139 and $10,041................................. $ 11,309 $ 10,205
--------- ---------
--------- ---------
Projected benefit obligation for service rendered to date................ $ 18,489 $ 17,051
Plan assets at fair value................................................ (10,857) (9,580)
--------- ---------
Projected benefit obligation in excess of plan assets.................... 7,632 7,471
Unrecognized net loss from past experience different from that assumed
and effects of changes in assumptions.................................. (686) (1,509)
Unrecognized net obligation upon adoption being recognized over 15
years.................................................................. (1,411) (1,588)
--------- ---------
Pension liability........................................................ $ 5,535 $ 4,374
--------- ---------
--------- ---------
</TABLE>
Net pension expense includes the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost...................................... $ 1,191 $ 855 $ 1,261
Interest cost..................................... 1,188 966 971
Actual return on plan assets...................... (1,218) (1,630) 55
Net amortization and deferral..................... 563 1,096 (190)
--------- --------- ---------
Net pension expense............................... $ 1,724 $ 1,287 $ 2,097
--------- --------- ---------
--------- --------- ---------
</TABLE>
AMC also sponsors a non-contributory Supplemental Executive Retirement Plan
(the "SERP") which provides certain employees additional pension benefits. The
actuarial present value of accumulated plan benefits related to the SERP was
$569,000 and $379,000 as of April 3, 1997 and March 28, 1996, respectively,
which is reflected in the Consolidated Balance Sheets.
F-57
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
The weighted average discount rate used to measure the plans' projected
benefit obligations was 7.0% for 1997 and 1996 and 7.75% in 1995. The rate of
increase in future compensation levels was 6.0% for 1997, 1996 and 1995 and the
expected long-term rate of return on assets was 8.5% for 1997, 1996 and 1995. A
limited number of employees are covered by collective bargaining agreements
under which payments are made to a union-administered fund.
AMC sponsors a voluntary thrift savings plan covering the same employees
eligible for the pension plan. Since inception of the savings plan, AMC has
matched 50% of each eligible employee's elective contributions, limited to 3% of
the employee's salary.
The Company's expense under the thrift savings plan was $1,270,000,
$1,032,000 and $1,015,000 for 1997, 1996 and 1995, respectively.
AMC currently offers eligible retirees the opportunity to participate in a
health plan (medical and dental) and a life insurance plan. Substantially all
employees may become eligible for these benefits provided that the employee must
be at least 55 years of age and have 15 years of credited service at retirement.
The health plan is contributory, with retiree contributions adjusted annually;
the life insurance plan is noncontributory. The accounting for the health plan
anticipates future modifications to the cost-sharing provisions to provide for
retiree premium contributions of approximately 20% of total premiums, increases
in deductibles and co-insurance at the medical inflation rate and coordination
with Medicare. Retiree health and life insurance plans are not funded. AMC is
amortizing the transition obligation on the straight-line method over a period
of 20 years.
The following table sets forth the plans' accumulated postretirement benefit
obligation reconciled with the amounts included in the Consolidated Balance
Sheets as of April 3, 1997 and March 28, 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................................. $ 618 $ 557
Fully eligible active plan participants.................................. 513 438
Other active plan participants........................................... 1,777 1,292
--------- ---------
Accumulated postretirement benefit obligation.............................. 2,908 2,287
Unrecognized net obligation upon adoption being recognized over 20 years... (697) (747)
Unrecognized gain (loss)................................................... (190) 105
--------- ---------
Postretirement benefit liability........................................... $ 2,021 $ 1,645
--------- ---------
--------- ---------
</TABLE>
F-58
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 9--EMPLOYEE BENEFIT PLANS (CONTINUED)
Postretirement expense includes the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost........................................... $ 199 $ 192 $ 188
Interest cost.......................................... 172 208 202
Net amortization and deferral.......................... 50 66 66
----- ----- -----
Postretirement expense................................. $ 421 $ 466 $ 456
----- ----- -----
----- ----- -----
</TABLE>
For measurement purposes, the annual rate of increase in the per capita cost
of covered health care benefits assumed for 1997 was 7.5% for medical and 4.75%
for dental. The rates were assumed to decrease gradually to 5.0% for medical and
3.0% for dental at 2020 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
April 3, 1997 by $862,000 and the aggregate of the service and interest cost
components of postretirement expense for 1997 by $164,000. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% for 1997 and 1996 and 7.75% for 1995.
NOTE 10--CONTINGENCIES
The Company, in the normal course of business, is party to various legal
actions. Management believes that the potential exposure, if any, from such
matters would not have a material adverse effect on the financial condition,
cash flows or results of operations of the Company.
NOTE 11--FUTURE DISPOSITION OF ASSETS
The Company has provided reserves for estimated losses from discontinuing
the operation of fast food restaurants, for theatres which have been or are
expected to be closed and for other future dispositions of assets.
In conjunction with the opening of certain new theatres in fiscal 1986
through 1988, the Company expanded its food services by leasing additional space
adjacent to those theatres to operate specialty fast food restaurants. The
Company discontinued operating the restaurants due to unprofitability. The
Company continues to sub-lease or to convert to other uses the space leased for
these restaurants. The Company is obligated under long-term lease commitments
with remaining terms of up to eleven years. As of April 3, 1997, the base rents
aggregate approximately $779,000 annually, and $7,150,000 over the remaining
term of the leases. As of April 3, 1997, the Company has subleased approximately
55% of the space with remaining terms ranging from 2 months to 68 months.
Non-cancellable subleases currently aggregate approximately $496,000 annually,
and $4,216,000 over the remaining term of the subleases.
NOTE 12--MERGER WITH SUBSIDIARY
The Board of Directors has approved an agreement providing for the Merger of
DI and AMCE with AMCE remaining as the surviving entity. The Merger has been
sought by members of the Durwood
F-59
<PAGE>
DURWOOD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND YEARS (52 WEEKS) ENDED MARCH 28, 1996
AND MARCH 30, 1995
NOTE 12--MERGER WITH SUBSIDIARY (CONTINUED)
family so that they may hold their interests in AMCE directly instead of
indirectly through DI and a related entity. In the Merger, stockholders of DI
would exchange their shares of DI stock for shares of AMCE's stock.
Prior to the effective time of the Merger, all of DI's assets (other than
its equity interest in AMCE) will be contributed to Delta Properties, Inc.
("Delta"), a subsidiary of the Company. In addition, DI's other subsidiaries,
other than AMCE and its subsidiaries, have been merged into Delta and Delta has
agreed to assume DI's liabilities. Delta's stock will be distributed to DI's
shareholders so that at the effective time of the Merger DI's sole assets will
consist of stock of AMCE and its beneficial interest in certain tax credits and
operating loss carryforwards.
If the Merger occurs, DI will be responsible for paying all of its costs in
connection with the Merger; the aggregate merger costs for both the Company and
AMCE are estimated to be approximately $2 million.
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it was practicable to estimate
that value.
The carrying value of cash and equivalents and investments in debt
securities approximates fair value because of the short duration of those
instruments. The fair value of publicly held corporate borrowings was based upon
quoted market prices. For other corporate borrowings, the fair value was based
upon rates available to the Company from bank loan agreements or rates based
upon the estimated premium over U.S. treasury notes with similar average
maturities.
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
Financial assets:
Cash and equivalents........... $ 26,042 $ 26,042 $ 12,888 $ 12,888
Available for sale
investments.................. 16 16 956 956
Financial liabilities:
Cash overdrafts................ $ 11,175 $ 11,175 $ 22,848 $ 22,848
Corporate borrowings........... 315,072 315,804 126,150 126,992
</TABLE>
F-60
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (the "Agreement") is
made as of March 31, 1997 by AMC Entertainment Inc., a Delaware corporation
("AMCE"), and Durwood, Inc., a Missouri corporation ("DI"). This Agreement
constitutes a binding contract between AMCE and DI in accordance with the terms
hereof and the applicable provisions of both the Delaware General Corporation
Law and The General and Business Corporation Law of Missouri. The Agreement is
entered into for substantial business reasons which are more fully described in
the statements of actions taken by the respective Boards of Directors of the
parties whereby the Agreement was authorized, and the parties intend that the
merger contemplated by the Agreement shall constitute a reorganization in which
no taxable income, gain or loss is recognized pursuant to Section 368(a)(1)(A)
and related sections of the Internal Revenue Code of 1986, as amended (the "Tax
Code"). The terms and conditions of the Agreement are as follows:
WITNESSETH:
WHEREAS, AMCE is a corporation duly organized and validly existing under the
laws of the State of Delaware, with authorized capital stock consisting of (i)
45,000,000 shares of Common Stock, par value 66 2/3 CENTS per share ("AMCE
Common Stock"), 6,549,489 shares of which are issued and outstanding, (ii)
30,000,000 shares of Class B Stock, par value 66 2/3 CENTS per share ("AMCE
Class B Stock"), 11,157,000 shares of which are issued and outstanding, and
(iii) 10,000,000 shares of Preferred Stock, par value 66 2/3 CENTS per share
("AMCE Preferred Stock"), of which 3,323,600 shares of $1.75 Cumulative
Convertible Preferred Stock ("AMCE Convertible Preferred Stock") are issued and
outstanding; and
WHEREAS, DI is a corporation duly organized and validly existing under the
laws of the State of Missouri, with authorized capital stock consisting of (i)
150,000 shares of Class A Stock, par value $100 per share ("DI Class A Stock"),
120,000 shares of which are issued and outstanding, and (ii) 50,000 shares of
Class B Stock, par value $100 per share ("DI Class B Stock"), 40,784 shares of
which are issued and outstanding; and
WHEREAS, prior to the Merger (as defined herein) becoming effective, DI has
advised AMCE that DI intends to convert 6,141,343 shares of AMCE Class B Stock
into a like number of shares of AMCE Common Stock pursuant to the terms of the
AMCE Class B Stock; and
WHEREAS, the Special Committee of the Board of Directors of AMCE composed of
directors who are not officers or employees of AMCE formed for the purpose of
evaluating and negotiating the terms of the Merger (the "Special Committee") has
recommended that the full Board of Directors of AMCE approve and adopt the
Agreement and such Board has reviewed, approved and adopted this Agreement and
deemed it advisable and in the best interests of AMCE that DI be merged into and
with AMCE pursuant to the terms and conditions set forth herein; and
WHEREAS, the Board of Directors of DI has reviewed and approved this
Agreement and deems it advisable and in the best interests of DI that DI be
merged into and with AMCE pursuant to the terms and conditions set forth herein;
and
WHEREAS, the Boards of Directors of AMCE and DI have directed that this
Agreement be submitted to the stockholders of AMCE and DI, respectively, for
their approval;
A1-1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants set forth herein, the parties hereto do hereby agree and covenant
as follows:
I. THE MERGER
1.1. NAMES OF CORPORATIONS. The names of the corporations proposing to
merge are:
AMC Entertainment Inc.
and Durwood, Inc.
1.2. MERGER. At the Effective Time (as defined below), subject to the
terms and conditions of this Agreement and in accordance with applicable law,
AMCE and DI shall merge into a single corporation by DI merging with and into
AMCE (the "Merger").
1.3. NAME OF SURVIVING CORPORATION. The name of AMCE, which is to be the
surviving corporation, shall not be changed as a result of the Merger.
1.4. CLOSING; EFFECTIVE TIME. Unless this Agreement has been terminated
under Section 6.4, a closing (the "Closing") shall take place as promptly as
practicable following satisfaction or waiver of the last of the conditions set
forth in Articles IV and V. The Merger shall become effective immediately upon
the filing of this Agreement, or a certificate of merger in lieu thereof, with
the Secretary of State of Delaware in accordance with applicable law. The time
of such effectiveness is referred to herein as the "Effective Time". At the
Closing, or as soon thereafter as practicable, the parties shall cause the
Merger to be consummated as provided in this Section 1.4.
1.5. EFFECT OF MERGER. (a) At the Effective Time, the separate existence
of DI shall cease. The existence of AMCE shall continue unaffected and
unimpaired by the Merger, and AMCE shall after the Effective Time have all of
the rights, privileges, immunities and powers and shall be subject to all of the
duties and liabilities of a corporation organized under the Delaware General
Corporation Law.
(b) At the Effective Time, AMCE shall have and thereafter possess all of the
rights, privileges, immunities, powers and franchises, of a public as well as of
a private nature, of each of the merging corporations, and all property, real,
personal and mixed, and all debts due on whatever account, including
subscriptions to shares, and all other choses in action, and every other
interest of or belonging to or due to either of the merging corporations shall
be taken and deemed to be transferred to and vested or remain in AMCE without
further act or deed (and the title to any real estate, or any interest therein,
vested in either of the merging corporations shall not revert or be in any way
impaired by reason of the Merger).
(c) AMCE shall, upon the Effective Time and thereafter, be responsible and
liable for all the liabilities and obligations of each of the merging
corporations, and any claim existing or action or proceeding pending by or
against either of such corporations may be prosecuted to judgment as if the
Merger had not taken place or, in the case of DI, AMCE may be substituted in
place of DI. Neither the rights of creditors nor any liens upon the property of
either of the merging corporations shall be impaired by the Merger.
1.6. CONVERSION OF SHARES. (a) Prior to the Effective Time, DI shall
convert 6,141,343 shares of AMCE Class B Stock into a like number of shares of
AMCE Common Stock.
(b) At the Effective Time, by virtue of the Merger and without any action on
the part of AMCE, DI or the holder of any of the following securities:
(i) Each share of AMCE Common Stock issued and outstanding immediately
prior to the Effective Time, other than those shares owned by DI, and each
share of AMCE Common Stock held in the treasury of AMCE immediately prior to
the Effective Time, shall continue to be one share of AMCE Common Stock.
A1-2
<PAGE>
(ii) Each share of AMCE Class B Stock issued and outstanding immediately
prior to the Effective Time, other than those shares owned by DI, and each
share of AMCE Class B Stock held in the treasury of AMCE immediately prior
to the Effective Time, shall continue to be one share of AMCE Class B Stock.
(iii) Each share of AMCE Convertible Preferred Stock issued and
outstanding immediately prior to the Effective Time shall continue to be one
share of AMCE Convertible Preferred Stock.
(iv) Each other share of AMCE Preferred Stock, if any, issued and
outstanding immediately prior to the Effective Time shall continue to be one
share of AMCE Preferred Stock.
(v) Each share of AMCE Common Stock and AMCE Class B Stock which
immediately prior to the Effective Time is owned of record by DI shall
continue to be one share of AMCE Common Stock and AMCE Class B Stock,
respectively, and shall be held in the treasury of AMCE until the Board of
Directors of AMCE determines otherwise.
(vi) Each share of DI Class A Stock which immediately prior to the
Effective Time is owned of record by Harvard College ("Harvard") shall be
converted into and become 32.142857 shares of AMCE Common Stock.
(vii) Each share of DI Class A Stock issued and outstanding immediately
prior to the Effective Time, other than those shares owned of record by
Harvard, shall be converted into and become 32.142857 shares of AMCE Class B
Stock.
(viii) Each share of DI Class B Stock which immediately prior to the
Effective Time is owned of record by Stanley H. Durwood, individually, as
Trustee of the 1992 Durwood, Inc. Voting Trust dated December 12, 1992 (the
"1992 Trust") and as Trustee under the Stanley H. Durwood Trust Agreement
dated August 14, 1989 (the "1989 Trust"), shall be converted into and become
243.767528 shares of AMCE Class B Stock.
(ix) Each share of DI Class B Stock which immediately prior to the
Effective Time is owned of record by any person other than Stanley H.
Durwood, the 1992 Trust or the 1989 Trust shall be converted into and become
243.767341 shares of AMCE Common Stock.
(x) Each share of DI Class A Stock and DI Class B Stock held in the
treasury of DI shall be canceled and retired and no payment shall be made
with respect thereto.
(c) At the Effective Time, the holders of certificates representing shares
of DI Class A Stock and DI Class B Stock outstanding at such time shall cease to
have any rights with respect to such Stock and such holders' sole rights shall
be to receive the number of shares of AMCE Common Stock or AMCE Class B Stock
into which their shares of DI Class A Stock or DI Class B Stock shall have been
converted by the Merger as provided herein.
(d) No fraction of a share of AMCE Common Stock and AMCE Class B Stock shall
be issued in connection with the Merger but in lieu thereof each holder of
shares of DI Class A Stock and DI Class B Stock otherwise entitled to a fraction
of a share of AMCE Common Stock or AMCE Class B Stock shall be paid by AMCE, as
a convenience and not as a separately bargained for consideration, an amount of
cash equal to such fraction multiplied by the average of the high and low
reported prices of one share of AMCE Common Stock on the AMEX (as defined in
Section 2.1(n)) on the trading day immediately preceding the Effective Time. No
such holder shall be entitled to dividends or other rights in respect of any
fractional share.
1.7. EXCHANGE OF CERTIFICATES. After the Effective Time, each holder of a
certificate theretofore representing outstanding shares of DI Class A Stock or
DI Class B Stock, upon surrender of the same to AMCE's transfer agent (the
"Transfer Agent"), shall be entitled to receive in exchange therefor
certificates representing the number of full shares of AMCE Common Stock or AMCE
Class B Stock into which
A1-3
<PAGE>
the shares of DI Class A Stock or DI Class B Stock have been converted pursuant
to the provisions of Section 1.6 of this Agreement.
As soon as practicable after the Effective Time, the Transfer Agent shall
send a notice and transmittal form to each record holder of an outstanding
certificate which prior to the Effective Time evidenced shares of DI Class A
Stock or DI Class B Stock which shall have been converted into AMCE Common Stock
or AMCE Class B Stock pursuant to the provisions of Section 1.6 of this
Agreement, advising such stockholder of the terms of such conversion and the
procedure for surrendering to the Transfer Agent such certificate in exchange
for certificates evidencing AMCE Common Stock or AMCE Class B Stock. Until so
surrendered, each outstanding certificate which, prior to the Effective Time,
represented DI Class A Stock or DI Class B Stock (other than shares held in the
treasury of DI) will be deemed for all corporate purposes of AMCE to evidence
ownership of the number of full shares of AMCE Common Stock or AMCE Class B
Stock into which the shares of DI Class A Stock or DI Class B Stock represented
thereby were converted; provided, however, that, until outstanding certificates
formerly representing DI Class A Stock or DI Class B Stock are so surrendered,
no dividend or other distribution payable to holders of record of AMCE Common
Stock or AMCE Class B Stock as of any date subsequent to the Effective Time
shall be paid to the holders of such outstanding certificates in respect
thereof. Upon surrender of certificates of DI Class A Stock or DI Class B Stock,
there shall be paid to the record holder of the certificates of AMCE Common
Stock or AMCE Class B Stock, respectively, issued in exchange therefor (i) at
the time of such surrender, the amount of dividends theretofore payable with
respect to such full shares of AMCE Common Stock or AMCE Class B Stock as of any
date subsequent to the Effective Time which have not yet been paid to a public
official pursuant to abandoned property, escheat or similar laws and (ii) at the
appropriate payment date, the amount of dividends with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such shares of AMCE Common Stock or AMCE Class B Stock.
No interest shall be payable with respect to the payment of such dividends on
surrender of outstanding certificates. If any certificate evidencing shares of
AMCE Common Stock or AMCE Class B Stock is to be issued in a name other than
that in which the certificate surrendered in exchange therefor is registered, it
shall be a condition of the issuance thereof that the certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange pay to the Transfer Agent any transfer or
other taxes required by reason of the issuance of a Certificate for shares of
AMCE Common Stock or AMCE Class B Stock in any name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of the Transfer Agent that such tax has been paid or is not
payable.
1.8. CHANGES IN CAPITALIZATION. If, between the date of this Agreement and
the Effective Time, the outstanding shares of AMCE Common Stock or AMCE Class B
Stock shall be changed into a different number of shares or a different class by
reason of any reclassification, recapitalization, split-up, combination,
exchange of shares or readjustment, or a stock dividend thereon shall be
declared with a record date within such period, the number of shares of AMCE
Common Stock or AMCE Class B Stock into which the shares of DI Class A Stock or
DI Class B Stock will be converted shall be appropriately adjusted.
1.9. CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS, OFFICERS. The
Certificate of Incorporation and By-laws of AMCE shall not be changed by or as a
result of the Merger. The directors and officers of AMCE prior to the Merger
shall continue in such offices after the Merger.
1.10. FURTHER ACTION. Each of the merging corporations shall take all
actions and do all things necessary, proper, or advisable under the laws of the
States of Delaware and Missouri to consummate and make effective the Merger
contemplated herein; provided, the binding effect of this Agreement shall be
subject to its approval by the requisite vote of the stockholders of each of the
merging corporations, or to its approval by the written consent of the
stockholders of each of the merging corporations in lieu of a vote, and to the
approval by the holders of a majority of the outstanding shares of AMCE Common
Stock (other than DI, the 1992 Trust, the 1989 Trust, members of the Durwood
Family (as defined below),
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spouses of the members of the Durwood Family, children of members of the Durwood
Family sharing the same household, and directors and officers of AMCE (the
"Durwood Stockholders")) present and voting at the AMCE Stockholder Meeting (as
hereinafter defined), in each case, in accordance with the requirements of the
laws of the States of Delaware and Missouri, respectively. As used herein, the
"Durwood Family" shall mean Stanley H. Durwood, Carol D. Journagan, Edward D.
Durwood, Thomas A. Durwood, Elissa D. Grodin, Brian H. Durwood and Peter J.
Durwood.
II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES OF DI. DI represents and warrants to
AMCE as follows:
(a) ORGANIZATION AND QUALIFICATION. DI is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Missouri, has all necessary power and authority to own its properties and
to carry on its business as now owned and operated by it, and is duly
qualified to do business and is in good standing as a foreign corporation in
each state where the nature of its business or of its properties makes such
qualification necessary.
(b) CAPITAL STOCK. The authorized capital stock of DI consists of
150,000 shares of DI Class A Stock, of which 120,000 shares are issued and
outstanding, and 50,000 shares of DI Class B Stock, of which 40,784 shares
are issued and outstanding. All outstanding shares of DI Class A Stock and
DI Class B Stock have been duly authorized, validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive rights
or of any federal or state securities law. Immediately prior to the
Effective Time, there will be no more than 120,000 shares of DI Class A
Stock and 40,784 shares of DI Class B Stock issued and outstanding. There
are no outstanding subscriptions, options, rights, warrants, convertible
securities or other agreements or commitments obligating DI to issue, pledge
or to transfer from treasury any additional shares of its capital stock of
any class. Neither DI nor any Subsidiary has agreed to register the sale of
any securities under the Securities Act (as hereinafter defined).
(c) SUBSIDIARIES. Schedule 2.1(c) contains a true and complete list of
all DI's subsidiaries (other than AMCE and its subsidiaries) (each such
subsidiary of DI shall hereinafter separately be called a "Subsidiary" and
collectively called the "Subsidiaries") as of the date hereof. As of the
date hereof, except as set forth on Schedule 2.1(c), DI does not own
directly or indirectly, any interest or investment (whether equity or debt)
in any corporation, partnership, business, trust or other entity, except the
Subsidiaries. Prior to the Effective Time, DI's entire interest in all of
the Subsidiaries shall be distributed to DI's stockholders in accordance
with the DI Pre-Merger Action Plan attached hereto as Exhibit A (the
"Pre-merger Action Plan"). At the Effective Time, DI will not own, directly
or indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, business, trust or other entity other than AMCE
Common Stock and AMCE Class B Stock.
(d) FINANCIAL STATEMENTS. DI has previously furnished to AMCE the
consolidated balance sheet of DI and its Subsidiaries as of March 28, 1996,
together with the related statements of income, stockholders equity and cash
flow, for the fiscal year ending on such date, certified by Coopers &
Lybrand L.L.P., independent certified public accountants, whose opinions
with respect to such consolidated financial statements are included
therewith. DI has also previously furnished to AMCE the unaudited
consolidated balance sheet of DI and its Subsidiaries as of December 26,
1996, together with the related unaudited statement of income for the
39-week period ending on such date, certified by the President of DI. The
foregoing financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied (except as may
be indicated therein or on the notes thereto and except that the unaudited
interim financial statements do not include footnote disclosures) and fairly
present the consolidated financial position and consolidated results of the
operations of DI and its Subsidiaries as at and for the dates and periods
shown thereon, subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments.
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(e) NO MATERIAL CHANGE. Except as set forth on Schedule 2.1(e) and in
the Pre-Merger Action Plan, since December 26, 1996, there has not been any:
(i) Material transaction by DI or any of its Subsidiaries;
(ii) Capital expenditures by DI or any of its Subsidiaries;
(iii) Material adverse change in the financial condition,
liabilities, assets, business or prospects of DI or of DI and its
Subsidiaries taken as a whole;
(iv) Any unfair or unlawful employment or labor practice, claim or
charge, organizing effort, or conduct which might materially interfere
with or disrupt operations of DI or of DI and its Subsidiaries taken as a
whole;
(v) Declaration, setting aside or payment of a dividend or other
distribution in respect of the capital stock of DI or any of its
Subsidiaries;
(vi) Direct or indirect redemption, purchase or other acquisition by
DI or any of its Subsidiaries of any shares of such capital stock;
(vii) Increase in the salary or other compensation payable or to
become payable by DI or any of its Subsidiaries to any of such
corporation's officers or directors, or the declaration, payment, or
commitment or obligation of any kind for the payment by DI or any of its
Subsidiaries of a bonus or other additional salary or compensation to any
such person;
(viii) Sale or transfer of any asset of DI or any of its
Subsidiaries;
(ix) Loan by DI or any of its Subsidiaries to any person or entity
or guaranty by DI or any of its Subsidiaries of any loan;
(x) Mortgage, pledge or other encumbrance of any asset of DI or any
of its Subsidiaries;
(xi) Waiver or release of any right or claim of DI or any of its
Subsidiaries;
(xii) Any change in any accounting principle or election used for
financial reporting or tax purposes by DI or any Subsidiary; or
(xiii) Agreement by DI or any of its Subsidiaries to do any of the
things described in the foregoing clauses.
(f) LIABILITIES. At the Effective Time DI will not have any material
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due.
(g) TAXES. Each of DI and its Subsidiaries has (i) filed all returns,
declarations, reports, information returns and statements of whatsoever kind
("Tax Returns") in respect of all federal, state, local, foreign and other
taxes, including interest, penalties and additions to tax with respect
thereto ("Taxes"), that they are required to file through the date hereof
and shall prepare and file all such Tax Returns required to be filed after
the date hereof and on or before the Effective Time and (ii) paid or
provided for the payment of all Taxes due and owing for the periods covered
by such Tax Returns and all Taxes, if any, required to be paid for which no
return is required. True copies of all federal, state, local and foreign Tax
Returns relating to DI's last three taxable years ended March 28, 1996 have
been delivered to AMCE. Neither DI nor any Subsidiary has been audited by
the Internal Revenue Service or any state, local or foreign taxing
jurisdiction since the year ended April 1, 1993, and no agreements or
consents extending the period during which any Taxes may be assessed or
collected are now in force. As of the date hereof, no material adjustments
have been proposed by the Internal Revenue Service or by any other taxing
authority with respect to any open tax years or tax returns.
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(h) PROPERTIES AND ASSETS. DI and its Subsidiaries do not own or hold
any interest in any real property or tangible assets. At the Effective Time,
DI will have no right, title or interest in any property or assets (other
than AMCE Common Stock and AMCE Class B Stock).
(i) LEASES. Except as set forth on Schedule 2.2(i), DI and its
Subsidiaries are not parties to or bound by (whether as lessor, lessee or
guarantor) any lease of real property or personalty.
(j) ACCURATE BOOKS AND RECORDS. The books and records of DI and its
Subsidiaries contain a complete and accurate description of all transactions
of DI and the Subsidiaries.
(k) INSURANCE. All premiums due and payable prior to the date hereof
on the life insurance policies reflected in Schedule 2.1(k) ("Life Insurance
Policies") have been paid and AMCE will have no liability for premiums on
such Life Insurance Policies. All outstanding loans made under the Life
Insurance Policies and the net cash surrender value thereof, net of policy
loans, as of December 31, 1996 are set forth on Schedule 2.1(k).
(l) COMPLIANCE WITH LAW. DI and its Subsidiaries have substantially
complied with, and are not in violation of, any applicable federal, state or
local statutes, laws or regulations (including, without limitation, any
applicable building, zoning or other law, ordinance or regulation).
(m) LITIGATION. (i) There is no suit, action, arbitration, or legal,
administrative or other proceeding or governmental investigation pending, or
to the best knowledge of DI and its Subsidiaries, threatened against DI or
any of its Subsidiaries, (ii) neither DI nor any of its Subsidiaries is in
default with respect to any order, writ, court, department, agency or
instrumentality applicable to it, and (iii) neither DI nor any of its
Subsidiaries is presently engaged in any legal action to recover monies due
or damages sustained by it.
(n) NO CONSENTS; NO DEFAULT. Except as may be required by the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act"), the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Securities Act"), state
securities laws, The General and Business Corporation Law of Missouri, the
Delaware General Corporation Law and the rules and regulations of the
American Stock Exchange , Inc. (the "AMEX") and the Pacific Stock Exchange,
respectively, there is no requirement applicable to DI or any of the
Subsidiaries to make any filing with, or to obtain any permit,
authorization, consent or approval of, any governmental or regulatory
authority as a condition to the lawful consummation by DI of the
transactions contemplated by this Agreement and the Pre-Merger Action Plan.
Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated in this Agreement and the Pre-Merger Action
Plan will result in or constitute any of the following:
(i) A conflict or breach of any provisions of the Articles of
Incorporation or By-laws (or other similar governing instruments) of DI
or any of the Subsidiaries;
(ii) A default or an event that, with notice or lapse of time or
both, would be a default, under any license, lease, franchise, promissory
note, conditional sales contract, commitment, indenture, mortgage, deed
of trust or other agreement, instrument or arrangement to which DI or any
of its Subsidiaries is a party or by which DI, its Subsidiaries or any of
their respective properties may be bound, or a violation of any
applicable law or governmental regulation;
(iii) An event that would permit any party to terminate any
agreement or to accelerate the maturity of any indebtedness or other
obligation of DI or any of its Subsidiaries; or
(iv) The creation or imposition of any lien, charge or encumbrance
on any of the properties of DI or any of its Subsidiaries.
(o) AUTHORIZATION; VALID AGREEMENT. DI has the corporate power and
authority to execute and deliver this Agreement and, subject to receiving
the requisite stockholder approval, to perform
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its obligations hereunder. The execution and delivery of this Agreement by
DI has been duly authorized by its Board of Directors and no further
corporate authorization is required for the consummation of the transactions
contemplated hereby or by the Pre-Merger Action Plan, except for the
approval of the stockholders of DI as required under The General and
Business Corporation Law of Missouri. This Agreement has been duly and
validly executed and delivered by DI and constitutes a valid and binding
agreement of DI, enforceable against DI in accordance with its terms, except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or other similar laws affecting creditors' rights generally and equitable
principles.
(p) NO MATERIAL MISSTATEMENTS OR OMISSIONS. None of the
representations or warranties made by DI in this Agreement and no statement
by DI or, to the best knowledge of DI, any other person, contained in any
document, certificate or other writing furnished by DI to AMCE contains any
untrue statement of a material fact or omits any material fact necessary to
make the statements herein or therein, in light of the circumstances under
which they were made, not misleading.
(q) FINDERS AND INVESTMENT BANKERS. None of DI, any of its
Subsidiaries or any of such corporations' respective officers or directors
has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
(r) EMPLOYEE BENEFITS.
(i) There are no Company Benefit Plans (as defined below). Neither
DI nor any of its Subsidiaries nor any ERISA Affiliate (as defined below)
of either DI or any of its Subsidiaries maintains, sponsors, contributes
to or is required to contribute to an Employee Benefit Plan (as defined
below) or a fringe benefit plan subject to Section 6039D of the Tax Code,
and neither DI nor any of its Subsidiaries nor any ERISA Affiliate of
either DI or any of its Subsidiaries has any liability (contingent or
otherwise) arising under or with respect to any such plan.
(ii) (A) None of the employees of DI or any Subsidiary is
represented in his or her capacity as an employee of such company by any
labor organization; (B) neither DI or any Subsidiary has recognized any
labor organization nor has any labor organization been elected as the
collective bargaining agent of any of their employees, nor has DI or any
Subsidiary signed any collective bargaining agreement or union contract
recognizing any labor organization as the bargaining agent of any of
their employees; and (C) as of the date hereof, there is no active or
current union organization activity involving the employees of DI or any
Subsidiary.
(iii) For the purposes of this Agreement: (A) the term "Company
Benefit Plan" shall include all employee benefit arrangements or payroll
practices, including without limitation, severance pay, sick leave,
vacation pay, salary continuation for disability, scholarship programs,
stock option or restricted stock plans maintained by DI or any Subsidiary
(whether formal or informal, whether for the benefit of a single
individual or for more than one individual and whether for the benefit of
current or former employees or their beneficiaries) on behalf of DI (or
any Subsidiary) or any of the employees of DI (or any Subsidiary) or to
which or under which or pursuant to which DI (or any Subsidiary) has
contributed or is obligated to make contributions on behalf of DI (or any
Subsidiary) or any employees of DI (or any Subsidiary); (B) the term
"Employee Benefit Plan" shall have the meaning ascribed to such term by
section 3(3) of ERISA; (C) the term "ERISA" shall refer to the Employee
Retirement Income Security Act of 1974, as amended; and (D) the term
"ERISA Affiliate" shall refer to any trade or business (whether or not
incorporated) under common control with any person within the meaning of
Section 414 (b), (c), (m) or (o) of the Tax Code) (provided that AMCE and
its subsidiaries shall not be deemed to be ERISA Affiliates of DI).
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(iv) Schedule 2.1(r) sets forth a true and complete list of all
employees of DI and its Subsidiaries and their current rates of
compensation.
(s) CONTRACTS AND AGREEMENTS. Schedule 2.1(s) identifies each
contract, lease, guarantee or other agreement (a "Contract") in effect on
the date of this Agreement to which DI or any of its Subsidiaries is a party
or by which any of their assets or properties are bound. None of DI or the
Subsidiaries are in default under any of such contracts, agreements,
understandings or leases and each is enforceable against the other party
thereto in accordance with its terms. There have been delivered or made
available to AMCE true and complete copies of all of the Contracts. At the
Effective Time, the only Contract binding upon DI will be this Agreement.
(t) ADEQUACY OF RESERVES. Any reserves set forth on the consolidated
financial statements of DI for the 39-week period ended December 26, 1996,
are adequate and sufficient to cover all liabilities with respect to which
such reserves were established.
(u) AGREEMENTS WITH INSIDERS. Set forth in Schedule 2.1(u) is a true
and complete list of every Contract to which DI or any Subsidiary is a party
or bound or by which any of the assets or properties of DI or any Subsidiary
is bound and (i) to which any Insider (as defined below) or Affiliate (as
defined below) of DI is a party or (ii) which benefits any Insider or
Affiliate of DI. For purposes of this Agreement:
(A) "INSIDER" shall mean each Durwood Stockholder or any Associate or
Relative of a Durwood Stockholder;
(B) an "AFFILIATE" of a specified person is a person that directly or
indirectly, though one or more intermediaries, controls, or is controlled
by, or is under common control with, the person specified (other than
AMCE and its majority-owned subsidiaries);
(C) the term "ASSOCIATE" used to indicate a relationship with any
person means (I) any corporation, partnership, joint venture or other
entity of which such person is an officer or partner or is directly or
indirectly, through one or more intermediaries, the beneficial owner of
10% or more of (1) any class or type of equity securities or other
profits interest or (2) the combined voting power of interests ordinarily
entitled to vote for management or otherwise (other than AMCE and its
majority-owned subsidiaries), and (II) any trust or other estate in which
such person has a substantial beneficial interest or as to which such
person serves as trustee or in a similar fiduciary capacity; and
(D) a "RELATIVE" of a person shall mean such person's spouse, such
person's parents, sisters, brothers, children and the spouses of the
foregoing, and any member of the immediate household of the foregoing.
2.2. REPRESENTATIONS AND WARRANTIES OF AMCE. AMCE represents and warrants
to DI as follows:
(a) ORGANIZATION AND QUALIFICATION. AMCE is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware.
(b) CAPITAL STOCK. On the date hereof the authorized capital stock of
AMCE consists of (i) 45,000,000 shares of AMCE Common Stock, of which
6,549,489 shares are issued and outstanding, (ii) 30,000,000 shares of AMCE
Class B Stock, of which 11,157,000 shares are issued and outstanding and
(iii) 10,000,000 shares of AMCE Preferred Stock, of which 3,323,600 shares
of AMCE Convertible Preferred Stock are issued and outstanding. At the
Effective Time all of the shares of AMCE Common Stock and AMCE Class B Stock
issued in the Merger pursuant to Section 1.6(b) hereof will be duly
authorized, validly issued, fully paid and nonassessable and not issued in
violation of any preemptive rights of AMCE's stockholders.
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(c) ENFORCEABILITY OF AGREEMENT. AMCE has the corporate power and
authority to execute and deliver this Agreement and, subject to receiving
the requisite approval of AMCE's stockholders, to perform its obligations
hereunder. This Agreement has been duly and validly executed and delivered
by AMCE and constitutes the valid and binding obligations of AMCE,
enforceable against it in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other
similar laws effecting creditors' rights generally and equitable principles.
The execution, delivery and performance of this Agreement and the
transactions contemplated by this Agreement have been duly authorized by the
Board of Directors of AMCE.
(d) NO VIOLATION. Assuming compliance with the requirements of the
Exchange Act, the Securities Act, state securities laws, The General and
Business Corporation Law of Missouri and the Delaware General Corporation
Law and the rules and regulations of the AMEX and the Pacific Stock
Exchange, respectively, none of the execution or delivery of this Agreement
by AMCE, the consummation by AMCE of the transactions contemplated hereby or
the fulfillment of the terms hereof will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default
under the organizational documents of AMCE or under any material agreement
or instrument under which AMCE is obligated, or violate any law to which
AMCE is subject.
2.3. REPRESENTATIONS AND WARRANTIES. All representations, warranties and
covenants made by DI contained in this Agreement and the schedules hereto and
any certificate, instrument or document delivered pursuant to this Agreement or
in connection with the transactions contemplated hereby shall be deemed material
and to have been relied upon by the parties, notwithstanding any investigation
made by AMCE.
III. COVENANTS AND AGREEMENTS
3.1. AFFIRMATIVE COVENANTS. Between the date hereof and the Effective
Time, except as otherwise contemplated by the Pre-Merger Action Plan, DI shall
conduct its business in the ordinary course as heretofore conducted. DI shall,
and shall cause any Subsidiary to, afford to officers, employees, counsel,
accountants and other authorized representatives of AMCE ("Representatives"), in
order to evaluate the transactions contemplated by this Agreement, reasonable
access, during normal business hours throughout the period prior to the
Effective Time to its properties, books and records (including, without
limitation, the work papers of independent accountants) and, during such period,
shall, and shall cause any Subsidiary to, furnish promptly to such
Representatives all information concerning its business, properties and
personnel as may reasonably be requested, provided that no investigation
pursuant to this Section 3.1 shall affect or be deemed to modify any of the
respective representations or warranties made by DI.
3.2. NEGATIVE COVENANTS. Between the date hereof and the Effective Time,
except as contemplated by the Pre-Merger Action Plan, DI shall not:
(a) Amend its certificate of incorporation, articles of incorporation,
by-laws, or other charter documents; make any change in its authorized,
issued or outstanding capital stock; issue any shares of capital stock;
grant any stock options or right to acquire shares of any class of its
capital stock or any security convertible into any class of capital stock;
purchase, redeem, retire or otherwise acquire any shares of any class of its
capital stock or any security convertible into any class of its capital
stock; or agree to do any of the foregoing;
(b) Declare, set aside or pay any dividend or other distribution in
respect of any class of its capital stock;
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(c) Adopt, enter into, or amend any employment contract or any bonus,
stock option, profit sharing, pension, retirement, incentive, or similar
employee benefit program or arrangement or grant any salary or wage
increase;
(d) Incur or guarantee any indebtedness for borrowed money or guarantee
any other obligation of any other person;
(e) Pay or incur any obligation or liability, absolute or contingent,
other than liabilities incurred in the ordinary and usual course of
business;
(f) Mortgage, pledge or subject to lien or other encumbrance any of its
properties or assets;
(g) Sell or transfer any of its properties or assets or cancel, release
or assign any indebtedness owed to it or any claims held by it;
(h) Make any investments of a capital nature either by property
transfers, or otherwise, or purchase any property or assets;
(i) Enter into or amend any material agreement;
(j) Merge or consolidate with any other corporation, acquire any stock
or acquire any assets of any other person, corporation or other business
organization, or enter into any discussions with any person concerning, or
agree to do, any of the foregoing; or
(k) Reorganize, restructure, recapitalize, liquidate or file a voluntary
petition in bankruptcy or enter into any composition with its creditors or
file a voluntary winding up petition.
3.3. REASONABLE EFFORTS. DI and AMCE shall: (i) promptly make their
respective filings and thereafter make any other submissions required under all
applicable laws with respect to the Merger and the other transactions
contemplated hereby and (ii) use their respective reasonable efforts to promptly
take, or cause to be taken, all other actions and do, or cause to be done, all
other things necessary, proper or appropriate to consummate and make effective
the transactions contemplated by this Agreement.
3.4. PUBLICITY. Except as may be required by applicable law or any listing
agreement with a national securities exchange (or similar agreement), DI and
AMCE agree that they will consult with each other concerning any proposed press
release or public announcement pertaining to the Merger.
3.5. REPRESENTATIONS AND WARRANTIES. Neither DI nor AMCE will, or will
allow any of their respective subsidiaries (other than, in the case of DI, AMCE)
to, take any action that would cause any of the representations and warranties
set forth herein not to be true and correct in all material respects at and as
of the Effective Time.
3.6. FURTHER ASSURANCES. At and after the Effective Time, the officers and
directors of AMCE will be authorized to execute and deliver, in the name and on
behalf of DI, any deeds, bills of sale, assignments or assurances and to take
and do, in the name and on behalf of DI, any other actions and things to vest,
perfect or confirm of record or otherwise in AMCE any and all right, title and
interest in, to and under any of the rights, properties or assets of DI acquired
or to be acquired by AMCE as a result of, or in connection with, the Merger.
3.7 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Effective Time, each of AMCE and DI will give prompt notice in writing to the
other of: (i) any information that indicates that any representation and
warranty contained herein was not true and correct as of the date hereof or will
not be true and correct as of the Effective Time, (ii) the occurrence, or
failure to occur, of any event which occurrence or failure to occur will result,
or has a reasonable prospect of resulting, in the failure to satisfy a condition
specified in Articles IV or V hereof, (iii) any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions
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contemplated by this Agreement, (iv) any notice or other communication from any
governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement, or (v) any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened against
AMCE or DI or any Subsidiaries or which relate to the Merger or the consummation
of the transactions contemplated by this Agreement or the Pre-Merger Action
Plan.
3.8 FILING. DI and AMCE agree that:
(i) AMCE shall prepare and file with the Securities and Exchange
Commission (the "SEC") as soon as is reasonably practicable a registration
statement on form S-4 (or another appropriate form) (the "Registration
Statement") and preliminary proxy materials with respect to the Merger, and
use all reasonable efforts to have the Registration Statement declared
effective by the SEC under the Securities Act and the preliminary proxy
materials cleared by the SEC under the Exchange Act;
(ii) AMCE and DI shall take all such action as may be required under
state blue-sky or securities laws in connection with the transactions
contemplated by this Agreement;
(iii) AMCE and DI shall cooperate with one another in determining
whether any filings are required to be made or consents required to be
obtained in any foreign jurisdiction or under the regulatory laws of any
state prior to the Effective Time in connection with the consummation of the
transactions contemplated by this Agreement, and in making any such filings
promptly and in seeking to obtain timely any such consents; and
(iv) AMCE shall use its reasonable efforts to have listed for trading on
the AMEX and, if AMCE Common Stock is still listed on the Pacific Stock
Exchange, on the Pacific Stock Exchange, the AMCE Common Stock to be issued
pursuant to the Merger.
3.9 PROXY STATEMENT. DI covenants and agrees with AMCE that at the time
the Registration Statement (including the definitive proxy materials contained
therein (the "Proxy Statement") and all other related proxy soliciting material
filed with the SEC) or any post-effective amendment thereto becomes effective,
and at all times subsequent to such effectiveness up to and including the
Effective Time, any information regarding DI, any Insider or any Affiliate of DI
set forth in the Registration Statement, any amendments or supplements thereto,
the Proxy Statement and in any other proxy soliciting material to be used by
AMCE and DI in connection with the transactions contemplated hereby,
(i) will comply as to form in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC thereunder; and
(ii) will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein
not misleading.
3.10 PRE-MERGER ACTION PLAN. DI shall cause all actions contemplated by
the Pre-Merger Action Plan to occur at the times contemplated by the Pre-Merger
Action Plan.
IV. AMCE CONDITIONS OF MERGER
The obligations of AMCE to consummate the Merger are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
each of which may be waived by AMCE as provided herein except as otherwise
required by applicable law:
4.1. STOCKHOLDER APPROVAL. The Merger shall have been approved by the
affirmative vote of the holders of the requisite number of the outstanding
shares of AMCE Common Stock, AMCE Class B Stock, DI Class A Stock and DI Class B
Stock, and, in addition, shall have been approved by the holders of a majority
of the outstanding shares of AMCE Common Stock (excluding the Durwood
Stockholders) present and voting at the meeting of stockholders called to
consider the Merger (the "AMCE Stockholder Meeting").
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4.2. DI CORPORATE ACTION. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the Merger and the transactions contemplated hereby and by the Pre-Merger Action
Plan shall have been duly and validly taken by DI.
4.3. REGISTRATION OF AMCE COMMON STOCK AND AMCE CLASS B STOCK. Prior to
the first date on which the Proxy Statement is mailed to AMCE stockholders, the
SEC shall have declared the Registration Statement effective and, at or prior to
the time required, any required approvals of state securities administrators
shall have been obtained. At the Effective Time, no stop order or similar
restraining order shall have been threatened or entered by the SEC or any state
securities administrator.
4.4. AMEX LISTING. The shares of AMCE Common Stock to be issued pursuant
to the Merger shall have been approved for listing by the AMEX for trading on
the AMEX and, if AMCE Common Stock is still listed on the Pacific Stock
Exchange, such shares shall have been approved for listing for trading on such
exchange.
4.5. GOVERNMENTAL FILINGS AND CONSENTS. All governmental filings required
to be made prior to the Effective Time with, and all governmental consents
required to be obtained prior to the Effective Time from, governmental and
regulatory authorities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and by
the Pre-Merger Action Plan shall have been made or obtained.
4.6. CONSENTS OF THIRD PARTIES. DI and AMCE shall have received all
requisite consents, approvals and agreements of third parties necessary to
ensure that neither the Merger nor any transactions contemplated herein or by
the Pre-Merger Action Plan shall violate any provision of any material
agreement, instrument, order, judgment or decree to which DI or any of its
Subsidiaries or AMCE is a party or by which any of them or their property may be
bound, or shall give rise to any right to accelerate any material indebtedness
of DI or any of its Subsidiaries or AMCE.
4.7. LITIGATION. There shall be no litigation, proceedings or actions
pending or threatened concerning the Merger that in the judgment of the Board of
Directors of AMCE acting with the recommendation of the Special Committee
renders consummation of the Merger inadvisable.
4.8. DISSENTING STOCK. No dissenters' rights shall have been exercised by
the holders of any shares of DI Class A Stock or DI Class B Stock.
4.9. STOCK AGREEMENT. The Durwood Family, the 1992 Trust, the 1989 Trust
and Delta Properties, Inc. shall have entered into a Stock Agreement with AMCE
in form and substance identical to Exhibit B attached hereto (the "Stock
Agreement"), and such agreement shall remain in full force and effect at the
Effective Time.
4.10. REGISTRATION AGREEMENT. The Durwood Family, the 1992 Trust, the 1989
Trust and Delta Properties, Inc. shall have entered into a Registration
Agreement (the "Registration Agreement") with AMCE in form and substance
identical to Exhibit C attached hereto and such agreement shall remain in full
force and effect at the Effective Time.
4.11. INDEMNIFICATION AGREEMENT. The Durwood Family, the 1992 Trust, the
1992 Trust and Delta Properties, Inc. shall at the time and on the date this
Agreement is executed and delivered have executed and delivered to AMCE an
Indemnification Agreement (the "Indemnification Agreement") in form and
substance identical to Exhibit D attached hereto and such agreement shall remain
in full force and effect at the Effective Time.
4.12 HARVARD CONSENT. Harvard shall have executed and delivered to AMCE an
instrument in form and substance identical to Exhibit E, and such instrument
shall remain in full force and effect at the Effective Time.
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4.13. FAIRNESS OPINION. AMCE shall have received from Furman Selz
Incorporated an opinion in form and substance satisfactory to AMCE confirming
the fairness of the Merger consideration to AMCE from a financial point of view.
4.14. AUDITORS' LETTER. AMCE shall have received from Coopers & Lybrand
L.L.P., certified public accountants, "comfort letters" dated the date of
mailing of the Proxy Statement and the date on which the Effective Time occurs
covering matters customary to transactions similar to the Merger in form and
substance satisfactory to AMCE.
4.15. REPRESENTATION AND WARRANTIES. The representations and warranties of
DI set forth in Article II hereof shall be true and correct in all material
respects as of the date of this Agreement and (having been deemed to be made
again at and as of the Effective Time) as of the Effective Time as though made
as of the Effective Time, except for those made as of a specified date, which
shall remain true and correct as of such date, and except as otherwise
contemplated by this Agreement, and the President of DI shall certify to that
effect to AMCE.
4.16. PERFORMANCE OF OBLIGATIONS. DI shall have performed in all material
respects all obligations required to be performed by it under this Agreement
prior to the Effective Time, and AMCE shall have received a certificate signed
by the Chief Executive Officer, the President or a Vice President of DI to that
effect.
4.17. TAX OPINION. AMCE shall have received the opinions of Chadbourne &
Parke, LLP in form satisfactory to AMCE to the effect that, for federal income
tax purposes, assuming consummation of the Merger in accordance with this
Agreement, the Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Tax Code and no income, gain or loss will be
recognized by AMCE or DI as a result of the Merger, which opinions shall be
dated within two days of the date of the Proxy Statement and the date of the
Merger.
4.18. OPINION OF COUNSEL. Blackwell Sanders Matheny Weary & Lombardi L.C.
shall have furnished to AMCE and the Special Committee its opinion as at the
date of the Closing in form and substance and as to such matters as are
reasonably satisfactory to AMCE.
4.19. CONVERSION OF SHARES BY DI. DI shall have converted 6,141,343 shares
of AMCE Class B Stock into a like number of shares of AMCE Common Stock.
V. DI CONDITIONS OF MERGER
The obligations of DI to consummate the Merger are subject to the
satisfaction at or prior to the Closing, of each of the following conditions,
each of which may be waived by DI as provided herein except as otherwise
required by applicable law.
5.1. STOCKHOLDER APPROVAL. The Merger shall have been approved by the
affirmative vote of the holders of the requisite number of the outstanding
shares of AMCE Common Stock, AMCE Class B Stock, DI Class A Stock and DI Class B
Stock and, in addition, shall have been approved by the holders of a majority of
the outstanding shares of AMCE Common Stock (excluding the Durwood Stockholders)
present and voting at the AMCE Stockholders Meeting.
5.2 AMCE CORPORATE ACTION. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and the consummation of
the Merger and the transactions contemplated hereby shall have been duly and
validly taken by AMCE.
5.3. REGISTRATION OF AMCE COMMON STOCK AND AMCE CLASS B STOCK. Prior to
the first date on which the Proxy Statement is mailed to AMCE stockholders, the
SEC shall have declared the Registration Statement effective and, at or prior to
the time required, any required approvals of state securities administrators
shall have been obtained. At the Effective Time, no stop order or similar
restraining order shall have been threatened or entered by the SEC or any state
securities administrator.
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5.4. AMEX LISTING. The AMCE Common Stock to be issued pursuant to the
Merger shall have been approved for listing by the AMEX for trading on the AMEX
and, if AMCE Common Stock is still listed on the Pacific Stock Exchange, such
shares shall have been approved for listing for trading on such Exchange.
5.5. GOVERNMENTAL FILINGS AND CONSENTS. All governmental filings required
to be made prior to the Effective Time with, and all governmental consents
required to be obtained prior to the Effective Time from, governmental and
regulatory authorities in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and by
the Pre-Merger Action Plan shall have been made or obtained.
5.6. CONSENTS OF THIRD PARTIES. AMCE shall have received all requisite
consents, approvals and agreements of third parties necessary to ensure that
neither the Merger nor any transactions contemplated herein or by the
transactions contemplated by the Pre-Merger Action Plan shall violate any
provision of any material agreement, instrument, order, judgment or decree to
which AMCE or any of its subsidiaries is a party or by which any of them, or
their property, may be bound, or shall give rise to any right to accelerate any
material indebtedness of AMCE or any of its subsidiaries.
5.7. LITIGATION. There shall be no litigation, proceedings or actions
pending or threatened concerning the Merger that in the judgment of the Board of
Directors of DI renders consummation of the Merger inadvisable.
5.8. REPRESENTATIONS AND WARRANTIES. The representations and warranties of
AMCE set forth in Article II hereof shall be true and correct in all material
respects as of the date of this Agreement and as of the Effective Time as though
made on and (having been deemed to be made again at and as of the Effective
Time) as of the Effective Time, except for those made as of a specified date,
which shall remain true and correct of such date, and, except as otherwise
contemplated by this Agreement, and the President, Chief Executive Officer or a
Vice President of AMCE shall certify to that effect to the other party.
5.9. PERFORMANCE OF OBLIGATIONS. AMCE shall have performed in all material
respects all obligations required to be performed by it under this Agreement
prior to the Effective Time, and DI shall have received a certificate signed by
the Chief Executive Officer, the President or a Vice President of AMCE to that
effect.
5.10. TAX OPINION. DI and its shareholders shall have received the
opinions of Chadbourne & Parke, LLP in form reasonably satisfactory to DI to the
effect that, for federal income tax purposes, assuming consummation of the
Merger in accordance with this Agreement, (i) the Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Tax Code and
(ii) except for cash received in lieu of fractional shares or in payment of
Credit Amounts (as defined in the Indemnification Agreement), no income, gain or
loss will be recognized by DI or its shareholders as a result of the Merger,
which opinions shall be dated within two days of the date of the Proxy Statement
and the date of the Merger.
5.11 REGISTRATION AGREEMENT. AMCE shall have entered into the Registration
Agreement, and the Registration Agreement shall remain in full force and effect
at the Effective Time.
5.12. STOCK AGREEMENT. AMCE shall have entered into the Stock Agreement
and such agreement shall remain in full force and effect at the Effective Time.
5.13. INDEMNIFICATION AGREEMENT. AMCE shall have entered into the
Indemnification Agreement and such agreement shall remain in full force and
effect at the Effective Time.
5.14 HARVARD CONSENT. Harvard shall have executed and delivered to AMCE an
instrument in form and substance identical to Exhibit E, and such instrument
shall remain in full force and effect at the Effective Time.
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VI. AMENDMENT, DEFERRAL, TERMINATION AND SURVIVAL
6.1. AMENDMENT. The parties to this Agreement, by mutual consent of the
Board of Directors of DI and Board of Directors of AMCE acting with the
recommendation of the Special Committee, may amend, modify or supplement this
Agreement in such manner as may be agreed upon by them in writing, at any time
before or after approval by the stockholders of each of AMCE and DI; PROVIDED,
HOWEVER, that no such amendment, modification or supplement shall, (i) if agreed
to after approval by the stockholders of AMCE, change the amount or nature of
the consideration to be received by stockholders of DI, or in the judgment of
the Board of Directors of AMCE acting with the recommendation of the Special
Committee otherwise have a material adverse effect on the rights of AMCE
stockholders or (ii) be effective unless approved by a majority of the members
of the Durwood Family (for which purpose each member shall have one vote).
6.2. WAIVER OF CONDITIONS; FAILURE OF CONDITIONS. The conditions to each
of the party's obligation to consummate the Merger are for the sole benefit of
such party and may be waived by such party in whole or in part to the extent
permitted by applicable law. In the event of a failure of the conditions set
forth in Sections 4.3 and 5.3, the parties will in good faith endeavor to
negotiate amendments to this Agreement that enable the parties to achieve the
objectives of the transactions contemplated hereby notwithstanding the failures
of such conditions.
6.3. DEFERRAL. Notwithstanding adoption and approval of this Agreement by
the stockholders of each of AMCE and DI, consummation of the transactions
provided for herein may be deferred by the Board of Directors of DI or the Board
of Directors of AMCE acting with the recommendation of the Special Committee at
any time prior to the Effective Time, if either such Board of Directors
determines that such deferral would be in the best interests of DI or AMCE,
respectively, or their stockholders.
6.4. TERMINATION. This Agreement may be terminated and the Merger and
other transactions provided for by the Agreement may be abandoned at any time
prior to the Effective Time, whether before or after approval by the
stockholders of each of DI and AMCE, by action of the Board of Directors of DI
or the Board of Directors of AMCE acting with the recommendation of the Special
Committee, if either such Board of Directors determines that the completion of
the transactions provided for herein would for any reason be inadvisable or not
in the best interests of DI or AMCE, respectively, or their stockholders.
6.5 SURVIVAL. The agreement of the parties contained in Sections 1.6, 1.7
and 7.1 hereof shall survive the consummation of the Merger and the agreements
of the parties contained in Section 7.1 hereof shall survive termination of this
Agreement.
VII. MISCELLANEOUS
7.1. EXPENSES. As used herein, "Expenses" shall mean, with respect to a
party, all expenses of such party incident to preparing, entering into and
carrying out this Agreement, the agreements referred to in Sections 4.9, 4.10
and 4.11 hereof and all other agreements, documents, instruments or certificates
contemplated hereby, or thereby, and the consummation of the Merger. If the
Merger is not consummated for any reason (other than as a result of the Board of
Directors of AMCE terminating this Agreement pursuant to Section 6.4 for a
Specified Reason (as defined below) or Without Cause (as defined below)), DI
shall pay and be responsible for all of its Expenses and all of AMCE's Expenses.
If this Agreement is terminated by the Board of Directors of AMCE pursuant to
Section 6.4 for a Specified Reason or Without Cause, DI shall pay and be
responsible for all of its Expenses and 50% of AMCE's Expenses. As used herein,
(x) a "Specified Reason" shall mean any of the following bases for a
determination by the Board of Directors of AMCE to terminate this Agreement
pursuant to Section 6.4: (i) that it is in the best interests of AMCE to pursue
an unrelated transaction and the transactions contemplated by this Agreement
would adversely impact such unrelated transaction, (ii) that a condition set
forth in Sections 4.5 or 4.6 hereof has failed due to facts or circumstances
unknown on the date of this Agreement to, and beyond the control of, AMCE, DI or
any member of the Durwood Family, (iii) that a
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condition set forth in Section 4.7 has failed (unless DI or any member of the
Durwood Family is a plaintiff (or is otherwise involved in a role adverse to
AMCE, the Board of Directors of AMCE or the Special Committee) in any
litigation, action or proceeding described therein), or (iv) that a condition
set forth in Section 4.15 has failed as a result of facts or circumstances
unknown on the date of this Agreement to, and beyond the control of, AMCE, DI or
any member of the Durwood Family and (y) "Without Cause" shall mean a
determination of the Board of Directors of AMCE to terminate this Agreement
pursuant to Section 6.4 without having a reasonable basis for such action.
7.2. NOTICES. Any notice, request, consent, waiver or other communication
required or permitted hereunder shall be effective only if it is in writing and
personally delivered or sent by certified or registered mail, postage prepaid,
addressed as follows:
<TABLE>
<S> <C>
To: AMC Entertainment Inc. Suite 1700 Power & Light Bldg.
106 West 14th Street
Post Office Box 419615
Kansas City, MO 64141-6615
With information copies to: Charles J. Egan, Jr., Esq.
Hallmark Cards, Incorporated
2501 McGee Trafficway
Kansas City, MO 64141-6126
The Honorable Paul E. Vardeman
Polsinelli, White, Vardeman &
Shalton
Suite 1000, Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
To: Durwood, Inc. Suite 1700 Power & Light Bldg.
106 West 14th Street
Post Office Box 419615
Kansas City, MO 64141-6615
With information copies to: Robert C. Kopple, Esq.
Kopple & Klinger
2029 Century Park East
Suite 1040
Los Angeles, CA 90067
Glenn Kurlander, Esq.
Schiff Hardin & Waite
150 East 52nd Street
Suite 2900
New York, New York 10022
Raymond F. Beagle, Jr., Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, 24th Floor
Kansas City, Missouri 64108-2684
</TABLE>
or such other person or address as the addressee may have specified in a notice
duly given to the sender as provided herein. Such notice or communication shall
be deemed to have been given upon receipt thereof.
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7.3. WAIVER. No delay or failure on the part of any party in exercising
any rights hereunder, and no partial or single exercise thereof, will constitute
a waiver of such rights or of any other rights hereunder.
7.4. BINDING EFFECT. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns.
7.5. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute
the entire agreement among the parties hereto pertaining to the subject matter
hereof and supersede all prior or contemporaneous, written or verbal agreements,
understandings and negotiations in connection herewith.
7.6. AMENDMENTS. This Agreement cannot be modified, amended or terminated,
except as provided in Article VI by an instrument in writing signed by all the
parties hereto; provided, however, that any provision of this Agreement may be
waived only in writing by the party to be charged with the waiver.
7.7. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable by any court of final jurisdiction, it is the intent of
the parties that all other provisions of this Agreement be construed to remain
fully valid, enforceable and binding on the parties.
7.8. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Missouri as applied to contracts that
are executed and performed entirely in such State, except to the extent that the
laws of the State of Delaware relate to the Merger.
7.9. HEADINGS. The headings to the paragraphs to this Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
this Agreement or any party hereto nor in any other way affect this Agreement or
any part hereof.
7.10. EXHIBITS. All exhibits and schedules attached to this Agreement are
incorporated herein by this reference.
7.11. MISCELLANEOUS. Whenever the context of this Agreement shall require,
the use of any gender shall include all genders, and the use of any singular
shall include the plural, and vice versa.
7.12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same agreement.
7.13. ASSIGNMENT. Neither this Agreement nor any of the rights, interests,
or obligations hereunder may be assigned by any party hereto without the prior
written consent of the other party.
7.14. ACCOUNTING TERMS. All accounting terms used herein that are not
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with United States generally accepted accounting principles
on the date hereof.
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IN WITNESS WHEREOF, this Agreement and Plan of Merger has been signed on
behalf of AMC Entertainment Inc. by Peter C. Brown, its President, and on behalf
of Durwood, Inc. by Stanley H. Durwood, its President, and the corporate seal of
each corporation has been affixed hereto and attested to by the Secretary of
each corporation, respectively, on the date first above written.
AMC ENTERTAINMENT INC.
By: /s/ PETER C. BROWN
-----------------------------------
Peter C. Brown, President
(SEAL)
ATTEST:
/s/ NANCY L. GALLAGHER
- -------------------------------------------
Nancy L. Gallagher, Secretary
DURWOOD, INC.
By: /s/ STANLEY H. DURWOOD
-----------------------------------
Stanley H. Durwood, President
(SEAL)
ATTEST:
/s/ NANCY L. GALLAGHER
- -------------------------------------------
Nancy L. Gallagher, Secretary
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<PAGE>
EXHIBIT A TO MERGER AGREEMENT
DI PRE-MERGER ACTION PLAN
It is anticipated that Durwood, Inc. ("DI") will undertake certain actions
before the merger with AMC Entertainment Inc. ("AMCE"), as described below.
Several of these pre-merger transactions involve the four DI subsidiaries
other than AMCE: Delta Properties, Inc. ("DPI"), Crosstown Development, Inc.,
Kansas City Downtown Redevelopment Corporation and Entertainment Group, Inc.
(collectively, the "non-AMCE subsidiaries").
1. All non-AMCE subsidiaries of DI will be merged into DPI before the end of
the current fiscal year.
2. DPI and DI will eliminate all intercompany debt before the end of the
current fiscal year.
3. All assets (other than shares of AMCE capital stock) and all liabilities of
DI will be transferred from DI to DPI before the end of the current fiscal
year. The DI shareholders shall negotiate the allocation of the relative
benefits and burdens of such assets and liabilities among the DI
shareholders (who ultimately will be the shareholders of DPI-5, below) in a
manner consistent with the Durwood Family Settlement Agreement.
4. AAE will be liquidated and its assets distributed in the manner set forth in
the Durwood Family Settlement Agreement.
5. DI will pay as a dividend or otherwise distribute all shares of stock of DPI
to the DI shareholders in the same ratio as the AMCE capital stock to be
received in the merger.
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EXHIBIT B TO MERGER AGREEMENT
STOCK AGREEMENT
THIS AGREEMENT, dated as of , 199 , is between (i) AMC
Entertainment Inc., a Delaware corporation ("AMCE"), (ii) Stanley H. Durwood,
individually, and as trustee of the 1992 Durwood, Inc. Voting Trust dated
December 12, 1992 (the "1992 Trust"), and as trustee of the Trust created
pursuant to the Stanley H. Durwood Trust Agreement dated August 14, 1989 (the
"1989 Trust"), Carol D. Journagan, Edward D. Durwood, Thomas A. Durwood, Elissa
D. Grodin, Brian H. Durwood, Peter J. Durwood (all persons and entities referred
to in this clause (ii) are referred to herein collectively as the "Family
Stockholders") and each Authorized Assignee (as defined below) of such Family
Stockholder (each such Family Stockholder and Authorized Assignee a
"Stockholder" and collectively "Stockholders") and (iii) solely for purposes of
Section 5.3 hereof, Delta Properties, Inc., a Missouri corporation.
WITNESSETH:
WHEREAS, Family Stockholders own (directly or indirectly) stock of Durwood,
Inc., a Missouri corporation ("DI"), which is party to an Agreement and Plan of
Merger and Reorganization among DI and AMCE (the "Merger Agreement"), providing
for the merger ("Merger") of DI into AMCE; and
WHEREAS, pursuant to the Merger, Family Stockholders will acquire shares of
AMCE's common stock, par value 66 2/3 CENTS per share (the "Common Stock") and
shares of AMCE's Class B Stock, par value 66 2/3 CENTS per share (the "Class B
Stock"); and
WHEREAS, the parties anticipate that a portion of the shares of Common Stock
received in the Merger (or the shares of Common Stock received upon the
conversion of shares of Class B Stock received in the Merger) will be offered in
a secondary offering registered under the Securities Act of 1933, as amended
(the "1933 ACT") pursuant to and as contemplated by the Registration Agreement
(the "Secondary Offering"); and
WHEREAS, AMCE requires that this Agreement be made as a condition precedent
to the Merger and its agreement to file a registration statement in connection
with the Secondary Offering.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements set forth herein and for other good and valuable consideration
the receipt of which is hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms, not otherwise defined
herein, have the meanings set forth below.
"ADJUSTED BASIS" shall have the meaning specified in the Registration
Agreement.
"AFFILIATE" of a specified person means a person (other than AMCE or a
majority-owned subsidiary of AMCE) that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified. For purposes of this definition, control of a person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such person whether by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
"ASSOCIATE" of any person means (i) a corporation or organization (other
than AMCE or a majority-owned subsidiary of AMCE) of which such person is an
officer or partner or is, directly or indirectly, the
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beneficial owner of 10% or more of any class of equity securities; (ii) any
trust or other estate in which such person has a substantial beneficial
ownership interest or as to which such person serves as trustee or in a similar
fiduciary capacity; or (iii) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who is a
director or officer of AMCE or any of its parents or subsidiaries.
"AUTHORIZED ASSIGNEE" of a Stockholder means (i) any person or entity (other
than a Charitable Assignee, except as provided in clause (ii) below) to which
Voting Securities are transferred by gift or otherwise without fair
consideration or (ii) if such Stockholder is a Family Stockholder, to the extent
such Stockholder (and its Authorized Assignees) transfers more than 5% in the
aggregate of the shares of Class B Stock or Common Stock received by such Family
Stockholder in the Merger (or Common Stock received upon the conversion of such
Class B Stock) ("Merger Shares") to Charitable Assignees, those Charitable
Assignees receiving shares in excess of such threshold.
"CHARITABLE ASSIGNEE" of a Stockholder shall mean any charitable
organization, including charitable remainder and charitable lead trusts, a
transfer of property to which by such Stockholder would qualify, at least in
part, for an income, gift or estate tax charitable deduction under the Internal
Revenue Code of 1986, as amended.
"DURWOOD CHILDREN" means Family Stockholders (other than Stanley H. Durwood,
the 1992 Trust and the 1989 Trust), and any Authorized Assignee of a Family
Stockholder (other than Authorized Assignees of Stanley H. Durwood, the 1992
Trust and the 1989 Trust that are not Family Stockholders).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EFFECTIVE DATE" shall mean the date on which the Effective Time (as defined
in the Merger Agreement) occurs.
"GROUP" means two or more persons acting as a partnership, limited
partnership, syndicate, or other group for the purpose of acquiring, holding, or
disposing of securities of AMCE.
"INDEMNIFICATION AGREEMENT" has the meaning specified in the Merger
Agreement.
"MERGER EXPENSES" shall mean those Expenses (as defined in the Merger
Agreement) not paid by Stanley H. Durwood, the 1989 Trust and the 1992 Trust
pursuant to Section 2(c) of the Indemnification Agreement.
"PERMITTED ASSIGNEE" shall have the meaning specified in the Registration
Agreement.
"REGISTRATION AGREEMENT" means the Registration Agreement dated the date
hereof among AMCE and the Family Stockholders.
"RESTRICTED PERIOD" shall mean a period commencing the date hereof and
ending three years after the Effective Date.
"VOTING SECURITIES" means Common Stock, Class B Stock and any other
securities of AMCE that may be issued from time to time having general voting
power under ordinary circumstances in the election of directors and any other
security of AMCE convertible into, or exercisable for, any such security.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS: Each
Stockholder, severally, as to himself, herself or itself, and not jointly,
hereby represents and warrants to AMCE as follows:
(a) Such Stockholder has full legal right, power and authority to enter
into and perform this Agreement and the Registration Agreement. This
Agreement and the Registration Agreement are valid and binding obligations
of such Stockholder enforceable against such Stockholder in accordance with
their terms, except that such enforcement may be subject to (i) bankruptcy,
fraudulent conveyance, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(b) Neither the execution and delivery of this Agreement or the
Registration Agreement by such Stockholder nor the consummation by such
Stockholder of the transactions contemplated hereby or thereby conflicts
with or constitutes a violation of or default under any statute, law,
regulation, order or decree applicable to such Stockholder, or any material
contract, commitment, agreement, arrangement or restriction of any kind to
which such Stockholder is a party or by which such Stockholder is bound.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF AMCE. AMCE hereby represents
and warrants to Stockholders as follows:
(a) AMCE has full legal right, power and authority to enter into and
perform this Agreement and the Registration Agreement. The execution and
delivery of this Agreement and the Registration Agreement by AMCE and the
consummation by AMCE of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate action on behalf of
AMCE. This Agreement and the Registration Agreement are valid and binding
obligations of AMCE enforceable against AMCE in accordance with their terms,
except that such enforcement may be subject to (i) bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(b) Neither the execution and delivery of this Agreement or the
Registration Agreement by AMCE nor the consummation by AMCE of the
transactions contemplated hereby or thereby conflicts with or constitutes a
violation of or default under the charter or bylaws of AMCE, any statute,
law, regulation, order or decree applicable to AMCE, or any material
contract, commitment, agreement, arrangement or restriction of any kind to
which AMCE is a party or by which AMCE is bound.
ARTICLE III
LIMITATIONS AND RESTRICTIONS
Section 3.1 RESTRICTIONS ON CERTAIN ACTIONS BY STOCKHOLDERS. Each of the
Durwood Children severally agrees that during the Restricted Period, such
Stockholder will not, nor will it permit any of its Affiliates or Associates
(other than Stanley H. Durwood, the 1992 Trust and the 1989 Trust) from and
after the date that such person becomes an Affiliate or Associate to, unless in
any such case specifically invited to do so by the Board of Directors of AMCE,
directly or indirectly, alone or in concert with others:
(a) become a member of a Group (other than a Group composed solely of
Stockholders) or make any public or private proposal with respect to an
extraordinary transaction involving AMCE or any of its subsidiaries;
A1-23
<PAGE>
(b) solicit, or participate in any "solicitation" of, "proxies" or
become a "participant" in any "election contest" (as such terms are defined
or used in Regulation 14A under the Exchange Act) with respect to AMCE; or
(c) deposit any shares of Common Stock in a voting trust (where the
trustees thereof are not such Stockholder or Permitted Assignees of such
Stockholder) or, except as specifically contemplated by this Agreement,
subject them to a voting agreement or other agreement or arrangement with
respect to the voting of such shares of Common Stock.
The foregoing limitations shall not restrict directors of AMCE who are also
Stockholders from taking such action as directors as they deem necessary,
advisable or proper to fulfill their fiduciary duties to AMCE and its
stockholders.
Section 3.2 VOTING. (a) During the Restricted Period, each of the Durwood
children, severally, shall grant the proxy set forth in paragraph (b) below, and
shall take no action to revoke or interfere with the exercise of such proxy or
to vote shares subject to the proxy in a manner inconsistent with the proxy.
(b) Each of the Durwood Children hereby appoints the Secretary and each
Assistant Secretary of AMCE, and each of them, as such Durwood Child's proxy and
attorney, with full power of substitution, to vote all shares of Common Stock
owned by such Durwood Child from time to time for each candidate for the Board
of Directors of AMCE in the same proportion as the aggregate votes cast in such
elections by all other holders of Common Stock not affiliated with AMCE, its
directors and officers. This proxy will remain in effect during the Restricted
Period and is coupled with an interest and irrevocable during the Restricted
Period. This proxy will automatically terminate upon the conclusion of the
Restricted Period.
Section 3.3 RESTRICTIONS ON TRANSFER. Each Stockholder severally agrees
not to sell, assign, pledge, hypothecate, transfer, grant an option with respect
to or otherwise dispose of any interest in Voting Securities, or enter into an
agreement, arrangement or understanding with respect to the foregoing
(individually and collectively, "Transfer"), except in compliance with the 1933
Act. Each Stockholder severally acknowledges that shares of Common Stock and
Class B Stock received in the Merger will be subject to limitations on Transfer
imposed by Rule 145 under the 1933 Act and may not be sold except in a
registered offering, pursuant to Rule 145 under the 1933 Act or in a transaction
otherwise exempt from registration under the 1933 Act and that certificates
evidencing Voting Securities of AMCE which it will receive as a result of the
Merger (and any shares subsequently acquired by such Stockholder) may bear an
appropriate legend to such effect (and to the effect that Authorized Assignees
are required to become parties to this Agreement and to the effect that the
Company has a right of first refusal in connection with certain sales thereof)
and that AMCE will give stop transfer instructions to its transfer agent
regarding Voting Securities held by such Stockholder.
Section 3.4 TRANSFERS BY GIFT. Subject to the next sentence, each
Stockholder severally agrees that during the Restricted Period such Stockholder
will not transfer Voting Securities to any Authorized Assignee unless such
person or entity agrees by instrument in form and substance reasonably
satisfactory to AMCE to be bound by the provisions of this Agreement as a
"Stockholder". It is understood and agreed that (subject to the requirements set
forth in the definition of Permitted Assignees in the Registration Agreement)
other transferees of Voting Securities shall not be required to agree to be
bound by the provisions of this Agreement and that each Family Stockholder may
transfer up to 5% in the aggregate of its Merger Shares to Charitable Assignees
free and clear of the provisions of this Agreement.
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ARTICLE IV
RIGHT OF FIRST REFUSAL
Section 4.1 RIGHT OF FIRST REFUSAL.
(a) In the event that during the Restricted Period one of the Durwood
Children desires to sell all or part of its holding of Voting Securities (the
"Shares") in a transaction that is exempt from the registration requirements of
the 1933 Act other than in brokers' transactions within the meaning of Section
4(4) thereof, AMCE shall first be given the opportunity, in the following
manner, to purchase (or cause a corporation, entity, person or group designated
by AMCE to purchase) all, but not less than all, of such Shares sought to be
sold.
(b) Such Durwood Child shall deliver a written notice (the "Notice") to AMCE
of such intention, describing the proposed terms for sale of the Shares,
identifying the offeror, identifying the proposed price of the Shares, and
setting forth the other terms and conditions of such offer or proposed sale.
(c) AMCE shall have the right for 5 business days (which period shall be
extended by the amount of time taken to determine the value of non-cash
consideration pursuant to the next sentence) from the receipt of the Notice (the
"Decision Period"), exercisable by written notice in accordance with Section 7.8
hereof, to elect to purchase (or to designate a corporation, entity, person or
group to purchase) all, but not less than all, of the Shares specified in the
Notice for cash at the price set forth therein and upon the terms and conditions
in the Notice.
If the purchase price specified in the Notice includes any property other
than cash, the purchase price shall be deemed to be the amount of any cash
included in the purchase price plus the value (as may be mutually agreed by the
Durwood Child and AMCE, or, if they are unable to agree, as determined by an
independent, nationally recognized investment banking firm mutually selected by
the Durwood Child and AMCE and the fees and expenses of such firm shall be borne
equally by the Durwood Child and AMCE) of the other property included in the
price; and in such event AMCE's notice of exercise of the right to elect to
purchase provided for herein shall set forth the purchase price so determined.
(d) If AMCE does not exercise its right to elect to purchase by the end of
the Decision Period, the Durwood Child shall be free to sell or agree to sell
the Shares specified in the Notice to the third party making the offer described
in the Notice, at the price specified therein or at any price in excess thereof
and on the other terms and conditions specified in the Notice. If the Durwood
Child shall not so sell all of the Shares within 90 days after the expiration of
the Decision Period, the provisions of this Agreement including, without
limitation, this Article IV, shall thereafter apply to the Shares not so sold.
(e) If AMCE exercises its right to purchase specified in paragraph (c) of
this Article IV, the closing of the purchase of the Shares shall take place
within 30 days after receipt by the Durwood Child of the notice of exercise at a
place, time, and date specified by AMCE. At the closing, AMCE shall deliver to
the Durwood Child cash or immediately available funds in an amount equal to the
purchase price set forth in the Notice, and the Durwood Child shall deliver to
AMCE certificates representing the Shares, which Shares shall be free and clear
of all liens, security interests and other encumbrances, duly endorsed in blank
or accompanied by stock powers duly executed and otherwise in form acceptable
for transfer of the Shares on the books of AMCE, together with all necessary
stock transfer stamps.
ARTICLE V
SECONDARY OFFERING
Section 5.1 CONSUMMATION OF SECONDARY OFFERING. The Stockholders agree to
use their best efforts to cause the Secondary Offering to be consummated during
the period beginning the date that is six months and one day from the Effective
Date and ending the date (the "Deadline Date") that is six
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<PAGE>
months from such date (provided that such six-month period ending on the
Deadline Date shall be extended by the length of any Postponement Period (as
defined in the Registration Agreement)).
Section 5.2 NUMBER OF SHARES. Subject to the terms and conditions of the
Registration Agreement, each Stockholder severally agrees that it will sell a
number of shares of Common Stock in the Secondary Offering equal to the number
of shares of Common Stock set forth next to such Stockholder's name in Exhibit A
to the Registration Agreement, subject to reduction or increase pursuant to the
Registration Agreement.
Section 5.3 FAILURE TO CONSUMMATE. In the event that the Merger is
consummated and the Secondary Offering is not consummated pursuant to the
Registration Agreement on or prior to the Deadline Date, other than as a result
of the breach by AMCE of the Registration Agreement, Stanley H. Durwood, the
1992 Trust, the 1989 Trust and Delta shall jointly and severally (i) pay to AMCE
a fee equal to an aggregate of $2,000,000 to compensate AMCE for the diversion
of its officers and other employees in connection with the Secondary Offering
and (ii) reimburse AMCE for all of its Merger Expenses.
ARTICLE VI
TAX MATTERS
Section 6.1 REPRESENTATIONS. Each Stockholder hereby severally represents
and warrants to AMCE that such Stockholder has no plan or intention, and as of
the Effective Date will have no plan or intention to sell, exchange, or
otherwise dispose of a number of shares of Common Stock or Class B Stock
received in the Merger that would reduce (i) the ownership by such Stockholder
of Common Stock received in the Merger to a number of shares equal to less than
50% of the number of shares of Common Stock received by such Stockholder in the
Merger or (ii) the ownership by such Stockholder of Class B Stock received by
such Stockholder in the Merger to a number of shares equal to less than 50% of
the number of shares of Class B Stock received by such Stockholder in the Merger
(plus, in the case of Stanley H. Durwood, the 1989 Trust and the 1992 Trust,
collectively, a number of shares of Class B Stock equal to the sum of (x) 65% of
the number of shares of Common Stock received by Harvard College in the Merger,
plus (y) a number of shares of Class B Stock equal to the Specified Percentage
of the total number of shares of Class B Stock and Common Stock issued in the
Merger).
Section 6.2 COVENANTS. Each Stockholder hereby severally covenants that
for a period of two years from the Effective Date, he, she or it will not sell,
exchange, or otherwise dispose of a number of shares of Common Stock or Class B
Stock received by the Stockholder in the Merger that would reduce (i) the
ownership by such Stockholder of Common Stock received in the Merger to a number
of shares equal to less than 50% of the number of shares of Common Stock
received by such Stockholder in the Merger (provided that such Stockholder may
sell, exchange or otherwise dispose of a number of shares of Common Stock in
excess of the number otherwise permitted by this clause (i) if another
Stockholder agrees by written instrument reasonably satisfactory to AMCE to
reduce the number of shares of Common Stock such other Stockholder is permitted
to sell pursuant to this clause (i) by a like number of shares and all other
Stockholders consent in writing thereto) or (ii) the ownership by such
Stockholder of Class B Stock received by such Stockholder in the Merger to a
number of shares equal to less than 50% of the number of shares of Class B Stock
received by such Stockholder in the Merger (plus, in the case of Stanley H.
Durwood, the 1989 Trust and the 1992 Trust, collectively, a number of shares of
Class B Stock equal to the sum of (x) 65% of the number of shares of Common
Stock received by Harvard College in the Merger, plus (y) a number of shares of
Class B Stock equal to the Specified Percentage of the total number of shares of
Class B Stock and Common Stock issued in the Merger).
Section 6.3 DEFINITIONS. As used herein, a "Specified Percentage" of a
number of shares of Common Stock and Class B Stock shall mean a percentage of
such shares equal to the product (expressed as a percentage) of (A) a fraction
having a numerator of $1,125,000 and a denominator equal to the sum of the value
of all shares of Common Stock and Class B Stock issued in the Merger (as
A1-26
<PAGE>
determined by AMCE in good faith, such determination to be conclusive and
binding on the parties in the absence of manifest error), plus $1,125,000,
multiplied by (B) 1.25. Immediately prior to the execution and delivery of this
Agreement, AMCE shall have delivered to the 1989 Trust, the 1992 Trust and
Stanley H. Durwood written notice of its determination of the Specified
Percentage.
ARTICLE VII
MISCELLANEOUS
Section 7.1 HOLDBACK AGREEMENT. The Stockholders agree in connection with
any registration of an underwritten offering of securities of AMCE during the
Restricted Period, including the Secondary Offering, upon the request of AMCE or
the underwriters managing such offering, not to sell, make any short sale of,
loan, grant any option for the purchase of, or otherwise dispose of any Voting
Securities without the prior written consent of AMCE or such underwriters, as
the case may be, for such period of time as AMCE or the underwriters may specify
(a "Holdback Period"), provided that the aggregate of Holdback Periods for any
365-day period shall not exceed 180 days.
Section 7.2 INTERPRETATION. For all purposes of this Agreement, the terms
AMCE "Common Stock" and "Class B Stock" shall include any securities of any
issuer entitled to vote generally for the election of directors of such issuer
which securities the holders of AMCE Common Stock or Class B Stock shall have
received or as a matter of right are entitled to receive as a result of (i) any
capital reorganization or reclassification of the capital stock of AMCE, (ii)
any consolidation, merger or share exchange of AMCE with or into another
corporation, or (iii) any sale of all or substantially all the assets of AMCE.
Section 7.3 ENFORCEMENT. (a) Stockholders, on the one hand, and AMCE, on
the other, acknowledge and agree that irreparable damage would occur if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, the parties will be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically its provisions in any court of the United States or
any state having jurisdiction, this being in addition to any other remedy to
which they may be entitled at law or in equity.
(b) No failure or delay on the part of either party in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
Section 7.4 ENTIRE AGREEMENT. This Agreement, the Merger Agreement, the
Registration Agreement and the Indemnification Agreement (as defined in the
Merger Agreement) and, with respect to the Family Stockholders only, that
certain Durwood Family Settlement Agreement dated as of January 22, 1996,
constitute the entire understanding of the parties with respect to the
transactions contemplated herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to the transactions
contemplated hereby except that the Durwood Family Settlement Agreement shall
not be deemed to be amended by this Agreement and shall remain in full force and
effect. This Agreement may be amended only by an agreement in writing executed
by all the parties.
Section 7.5 SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be unenforceable, the remaining provisions
shall remain in full force and effect. It is declared to be the intention of the
parties that they would have executed the remaining provisions without including
any that may be declared unenforceable.
Section 7.6 HEADING. Descriptive headings are for convenience only and
will not control or affect the meaning or construction of any provision of this
Agreement.
Section 7.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and each such executed counterpart will be an original instrument.
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<PAGE>
Section 7.8 NOTICES. All notices, consents, requests, instructions,
approvals and other communications provided for in this Agreement and all legal
process in regard to this Agreement will be validly given, made or served, if in
writing and delivered personally, by telecopy (except for legal process) or sent
by registered mail postage paid:
<TABLE>
<S> <C>
If to AMCE: AMC Entertainment Inc.
106 W. 14th Street
Kansas City, Missouri 64101
Attention: Corporate Secretary
Fax:
with copies to: Charles J. Egan, Jr., Esq.
Hallmark Cards, Incorporated
2501 McGee Trafficway
Kansas City, MO 64141-6126
The Honorable Paul E. Vardeman
Polsinelli, White, Vardeman & Shalton
Suite 1000, Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
If a Stockholder or Delta: to the address set forth next to
such Stockholder's or Delta's name
on the signature pages hereto
With information copies of notices
to a Stockholder (other than Stanley
H. Durwood, the 1992 Trust or the
1989 Trust) or Delta to: Robert C. Kopple, Esq.
Kopple & Klinger
2029 Century Park East
Suite 1040
Los Angles, CA 90067
Glenn Kurlander, Esq.
Schiff Hardin & Waite
150 East 52nd Street
Suite 2900
New York, New York 10022
With information copies of notices
to Stanley H. Durwood, the 1992
Trust, the 1989 Trust or Delta to: Raymond F. Beagle, Jr., Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, 24th Floor
Kansas City, Missouri 64108-2684
</TABLE>
or to such other address or telecopy number as any party may, from time to time,
designate in a written notice given in a like manner. Notice shall be deemed
given upon receipt thereof.
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<PAGE>
Section 7.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the successors, heirs, legatees, devisees and
personal and legal representatives of the parties and Authorized Assignees of
Stockholders; provided, however, that no party may assign this Agreement (other
than an assignment by a Stockholder to an Authorized Assignee as provided
herein) without the prior written consent of all other parties.
Section 7.10 GOVERNING LAW.
(a) This Agreement will be governed by and construed and enforced in
accordance with the internal laws of the State of Missouri without giving effect
to the conflict of laws principles thereof.
(b) Each party hereto hereby consents to, and confers exclusive jurisdiction
upon, the courts of the State of Missouri and the Federal courts of the United
States of America located in the City of Kansas City, Missouri, and appropriate
appellate courts therefrom, over any action, suit or proceeding arising out of
or relating to this Agreement. Each party covenants that it will not commence
any action, suit or proceeding arising out of or relating to this Agreement in
any other jurisdiction. Nothing in this paragraph shall affect the rights of a
party to enforce a judgment rendered by the courts referred to in the first
sentence of this paragraph in any other jurisdiction. Each party hereto hereby
waives, and agrees not to assert, as a defense in any such action, suit or
proceeding that it is not subject to such jurisdiction or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
this Agreement may not be enforced in or by said courts or that its property is
exempt or immune from execution, that the suit, action or proceeding is brought
in an inconvenient forum, or that the venue of the suit, action or proceeding is
improper. Service of process in any such action, suit or proceeding may be
served on any party anywhere in the world, whether within or without the State
of Missouri by mailing a copy thereof by registered or certified mail, postage
prepaid, to such party at its address provided in Section 7.8 of this Agreement,
provided that service of process may be accomplished in any other manner
permitted by applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first referred to above.
AMC ENTERTAINMENT INC.
By
--------------------------------------
Peter C. Brown
President
<TABLE>
<CAPTION>
ADDRESS: STOCKHOLDERS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Suite 1700
Power & Light Building
106 West 14th Street --------------------------------------------
P.O. Box 419615 Stanley H. Durwood
Kansas City, Missouri 64141-6615
1323 Granite Creek Drive --------------------------------------------
Blue Springs, MO 64015 Carol D. Journagan
</TABLE>
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<TABLE>
<CAPTION>
ADDRESS: STOCKHOLDERS
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
3001 West 68th Street --------------------------------------------
Shawnee Mission, KS 66208 Edward D. Durwood
P.O. Box 7208 --------------------------------------------
Rancho Santa Fe, CA 92067 Thomas A. Durwood
187 Chestnut Hill Road --------------------------------------------
Wilton, CT 06897 Elissa D. Grodin
655 N.W. Altishan Place --------------------------------------------
Beaverton, OR 97006 Brian H. Durwood
666 West End Avenue --------------------------------------------
New York, NY 10025 Peter J. Durwood
Suite 1700
Power & Light Building
106 West 14th Street --------------------------------------------
P.O. Box 419615 Stanley H. Durwood, as trustee of the 1992 Trust
Kansas City, Missouri 64141-6615
Suite 1700
Power & Light Building
106 West 14th Street --------------------------------------------
P.O. Box 419615 Stanley H. Durwood, as trustee of the 1989 Trust
Kansas City, Missouri 64141-6615
Suite 1700 DELTA PROPERTIES, INC.
Power & Light Building
106 West 14th Street
P.O. Box 419615 --------------------------------------------
Kansas City, Missouri 64141-6615
</TABLE>
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<PAGE>
EXHIBIT C TO MERGER AGREEMENT
REGISTRATION AGREEMENT
THIS REGISTRATION AGREEMENT (the "Agreement") is made and entered into this
day of , 199 , between (i) AMCE Entertainment Inc., a Delaware
corporation (the "Company"), (ii) Stanley H. Durwood, individually and as
trustee of the 1992 Durwood, Inc. Voting Trust dated December 12, 1992 (the
"1992 Trust"), and the Trust created pursuant to the Stanley H. Durwood Trust
Agreement dated August 14, 1989 (the "1989 Trust"), Carol D. Journagan, Edward
D. Durwood, Thomas A. Durwood, Elissa D. Grodin, Brian H. Durwood, Peter J.
Durwood (the "Family Stockholders") and each Permitted Assignee (as herein
defined) of such Family Stockholder listed on Exhibit A to this Agreement from
time to time (each such Family Stockholder and Permitted Assignee a
"Stockholder" and collectively "Stockholders") and (iii) solely for purposes of
Section 4 hereof, Delta Properties, Inc., a Missouri corporation.
The Company has agreed to provide to the Stockholders the registration
rights ("Registration Rights") set forth in this Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
Section 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following respective meanings:
"ADJUSTED BASIS" shall mean, as of a specified date with respect to a
specified number of shares of Common Stock or Class B Stock, the number of
shares of Common Stock and Class B Stock that a record holder of such specified
number of shares on [insert date of Merger Agreement] would hold on such
specified date, after giving effect to all stock dividends and splits and all
subdivisions, combinations or reclassifications of such class of securities the
record date of which occurs between [insert date of Merger Agreement] and such
specified date.
"CHARITABLE ASSIGNEE" of a Stockholder shall mean any charitable
organization, including charitable remainder and charitable lead trusts, a
transfer of property to which by such Stockholder would qualify, at least in
part, for an income, gift or estate tax charitable deduction under the Internal
Revenue Code of 1986, as amended.
"CLASS B STOCK" shall mean the Class B Stock, par value 66 2/3 CENTS per
share, of the Company.
"COMMISSION" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the Exchange Act or the Securities Act,
whichever is the relevant statute for the particular purpose.
"COMMON STOCK" shall mean the Common Stock, par value 66 2/3 CENTS per
share, of the Company.
"DI" shall mean Durwood, Inc., a Missouri corporation, which is to be merged
into the Company in the Merger.
"EFFECTIVENESS PERIOD" shall have the meaning set forth in Section 2(a).
"EFFECTIVE DATE" shall mean the date on which the Commission declares a
Registration effective or on which a Registration otherwise becomes effective.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, or any
successor thereto, as the same shall be amended from time to time.
The term "HOLDER" shall mean a Stockholder and such of its respective
Permitted Assignees who acquire Registrable Securities, directly or indirectly,
from such Stockholder or from any Permitted Assignee of such Stockholder.
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<PAGE>
"MERGER" shall mean the merger of DI with and into the Company pursuant to
the Agreement and Plan of Merger and Reorganization dated as of March 31, 1997
between the Company and DI (the "Merger Agreement").
"PERMITTED ASSIGNEES" of a Stockholder shall mean any of the following
persons and entities to which Registrable Securities are transferred by such
Stockholder by gift prior to the date the Registration Statement is first filed
with the Commission that at the time of such transfer agree by instrument in
form and substance reasonably satisfactory to the Company to be bound by the
provisions of (x) this Agreement and (y) the Stock Agreement, in each case as a
"Stockholder": (i) another Stockholder, (ii) the spouse of a Stockholder, (iii)
a lineal descendant of a Stockholder, including an adopted child, and any spouse
of a lineal descendant (each, a "Family Member"), (iv) a trust established by
one or more Stockholders or Family Members of one or more Stockholders
principally for the benefit of one or more Stockholders or Family Members of
Stockholders and/or one or more Charitable Assignees, (v) the estate of such
Stockholder and (vi) any Charitable Assignee. Upon the transfer of shares of
Registrable Securities by a Stockholder to a Permitted Assignee of such
Stockholder as provided herein prior to the date the Registration Statement is
first filed with the Commission, Exhibit A hereto will be deemed to be amended
without further action of the parties hereto (x) to reduce the number of shares
of Registrable Securities set forth next to such Stockholder's name on Exhibit A
by the number of shares so transferred that will be subject to this Agreement,
(y) if such Permitted Assignee's name is not listed on Exhibit A, to add the
name of such Permitted Assignee to Exhibit A as a Stockholder, and (z) to set
forth the number of shares of Registrable Securities so transferred that will be
subject to this Agreement (or to increase the number of shares so listed by the
number of shares so transferred that will be subject to this Agreement) next to
such Permitted Assignee's name on Exhibit A. Notwithstanding any provision of
this Agreement to the contrary, a Family Stockholder may transfer to or for the
benefit of one or more Charitable Assignees in the aggregate up to five percent
(5%) of the number of shares of Common Stock or Class B Stock received by such
Family Stockholder in the Merger (or shares of Common Stock issued upon
conversion of such Class B Stock), free and clear of all the provisions of this
Agreement, and such Charitable Assignees may elect after the date of transfer
(but otherwise at a time consistent with the provisions of this Agreement) to
participate in the Registration (in which case such Charitable Assignee shall be
deemed to be a Permitted Assignee (except that such Charitable Assignee need not
agree to be bound by the provisions of the Stock Agreement)); provided that if
any such Charitable Assignee elects to participate in the Registration, (i) such
Charitable Assignee must then agree by instrument in form and substance
satisfactory to the Company to be bound by this Agreement and (ii) the
provisions of the preceding sentence shall apply.
The term "PERSON" shall mean a corporation, association, partnership
(general, limited or limited liability), organization, business, limited
liability company, individual, government or political subdivision thereof or
governmental agency.
"PROSPECTUS" shall mean the prospectus included in a Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
prospectus, including post-effective amendments, and all documents and materials
incorporated by reference in such prospectus.
"REGISTRABLE SECURITIES" shall mean the shares of Common Stock (on an
Adjusted Basis), listed on Exhibit A hereto and acquired by Stockholders
pursuant to the Merger or upon conversion of shares of the Class B Stock
acquired by Stockholders pursuant to the Merger.
"REGISTRATION" shall have the meaning set forth in Section 2(a).
"REGISTRATION EXPENSES" shall have the meaning set forth in Section 4
hereof.
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"REGISTRATION STATEMENT" shall mean a registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference in such registration statement.
"SECURITIES ACT" shall mean the Securities Act of 1933, or any successor
thereto, as the same shall be amended from time to time.
"STOCK AGREEMENT" shall have the meaning set forth in the Merger Agreement.
The term "UNDERWRITTEN OFFERING" shall mean a distribution of securities
subject to registration under the Securities Act in which securities are sold to
an underwriter for reoffering to the public.
Section 2. REGISTRATION.
(a) REGISTRATION. Subject to the consummation of the Merger and the
effectiveness of the Registration, each Stockholder agrees to participate in a
registered underwritten secondary offering of at least 3,000,000 shares (on an
Adjusted Basis) in the aggregate of Registrable Securities on the terms and
conditions set forth in this Agreement and to sell such number of shares of
Common Stock in such underwritten offering as is set forth next to each
Stockholder's name on Exhibit A, subject to increase or reduction as set forth
below. The Stockholders agree that the underwriters for the Registration will
use their reasonable efforts in light of market conditions to sell at least 70%
of the shares sold in such secondary offering to institutional (as opposed to
retail) investors. The Company agrees (subject to the performance by the
Stockholders of their obligations hereunder) to use its reasonable efforts to
file a Registration Statement on a form selected by the Company to register
under the Securities Act for sale to the public in an underwritten offering the
number of shares of Registrable Securities owned by each Stockholder set forth
next to such Stockholder's name on Exhibit A hereto (on an Adjusted Basis) from
time to time (the "Registration") or such smaller or greater number of shares of
Registrable Securities as shall be agreed by the Company and such Stockholder in
writing, PROVIDED that (x) the number of shares of Registrable Securities of a
Stockholder set forth on Exhibit A may be decreased without the consent of the
Company by written notice to the Company reasonably satisfactory to the Company
from such Stockholder if (1) the number of shares of Registrable Securities of
another Stockholder set forth on Exhibit A is at the same time increased by a
like number of shares or (2) such shares are transferred to a Permitted Assignee
of such Stockholder and such Permitted Assignee becomes a party hereto as a
Stockholder and such shares so transferred are set forth next to such Permitted
Assignee's name on Exhibit A hereto, (y) the number of shares of Registrable
Securities of a Stockholder set forth on Exhibit A may be decreased without the
consent of the Company by written notice to the Company reasonably satisfactory
to the Company from such Stockholder so long as after giving effect thereto the
Registration covers at least 3,000,000 shares of Common Stock (on an Adjusted
Basis) and (z) the number of shares of Registrable Securities of a Family
Stockholder set forth in Exhibit A may be increased without the consent of the
Company by written notice to the Company from such Family Stockholder so long as
after giving effect thereto the Registration covers no more than 5,000,000
shares of Common Stock (on an Adjusted Basis). Should more than one Family
Stockholder seek to increase the number of Registrable Securities as permitted
above and as a result the number of shares sought to be included in the
Registration exceeds 5,000,000 shares (on an Adjusted Basis), the number of
shares, if any, that Stanley H. Durwood, the 1992 Trust and the 1989 Trust have
sought to include in the Registration above the number listed on Exhibit A (on
an Adjusted Basis) shall be reduced to the extent necessary to reduce the
aggregate number of shares sought to be included in the Registration to
5,000,000 shares (on an Adjusted Basis), and if such number of shares still
exceeds 5,000,000, the Company shall allocate the increased number of shares to
be included in the Registration among such Family Stockholders (other than
Stanley H. Durwood, the 1992 Trust and the 1989 Trust) seeking an increase on a
pro rata basis or in such other manner as such Family Stockholders may agree. In
the event of any increase or decrease in the number of Registrable Securities of
a Stockholder as set forth above, Exhibit A hereto shall be
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deemed amended to increase or decrease, accordingly, the number of shares of
Registrable Securities set forth next to such Stockholder's name. The Company
shall (subject to the performance by the Stockholders of their obligations
hereunder) use its reasonable efforts to cause the Registration to be declared
effective under the Securities Act as promptly as practicable on or after the
date that is six months and one day from the date of the Merger and to keep the
Registration effective under the Securities Act for a period ending on the date
that is six months from such date (provided that such six month period shall be
extended by the length of any Postponement Period (as defined below)) or such
shorter period ending when all Registrable Securities covered by the
Registration have been sold (the "Effectiveness Period").
(b) SUPPLEMENTS AND AMENDMENTS. The Company shall supplement and amend the
Registration Statement, prior to the Effective Date and during the Effectiveness
Period, if (i) required by the rules, regulations or instructions applicable to
the registration form used for such Registration, (ii) otherwise required by the
Securities Act or (iii) reasonably requested by the holders of a majority in
aggregate principal amount of the Registrable Securities covered by such
Registration Statement or by any underwriter of such Registrable Securities.
(c) SELECTION OF UNDERWRITERS. The managing underwriters for the
Registration shall be selected jointly by the Company and the Family
Stockholders (other than the 1992 Trust and the 1989 Trust) acting by majority
vote (for which purpose each such Family Stockholder shall have one vote).
(d) CONDITIONS TO THE OBLIGATIONS OF COMPANY. The Company shall be
entitled to postpone (or if already filed may withdraw such Registration
Statement), for an aggregate of up to 180 days (together with any period
described in the last sentence of Section 3(b) hereof, a "Postponement Period"),
the filing of the Registration Statement otherwise required to be prepared and
filed by it pursuant hereto if, as a result of the Registration the Company
would be required to prepare any financial statements other than those it
customarily prepares or the Company determines in its reasonable business
judgment that such registration and offering would interfere with any material
financing, acquisition, corporate reorganization or other material corporate
transaction or development involving the Company and gives the Stockholders
written notice of such determination.
Section 3. REGISTRATION PROCEDURES.
(a) In connection with the Company's obligations with respect to the
Registration, the Company shall (subject to the performance by the Stockholders
of their obligations hereunder):
(i) prepare and file with the Commission a Registration Statement which
shall permit the disposition of the Registrable Securities, in an
underwritten offering, and use its reasonable efforts to cause such
Registration Statement to become effective as provided in this Agreement;
PROVIDED, HOWEVER, before filing the Registration Statement or Prospectus or
any amendments or supplements thereto (including documents that would be
incorporated therein by reference after the initial filing of the
Registration Statement), the Company shall afford the Counsel (as defined
below) and the managing underwriters, an opportunity to review copies of all
such documents proposed to be filed; PROVIDED, FURTHER, that the Company
shall not file any Registration Statement or related Prospectus or any
amendments or supplements thereto (including such documents incorporated by
reference) if such counsel for all such holders, or the managing
underwriters shall reasonably object, in writing, on a timely basis
(PROVIDED that any such objecting party and the Company use their best
efforts promptly to resolve such party's objections on a basis reasonably
satisfactory to such party and the Company which will permit such filing);
(ii) prepare and file with the Commission such amendments,
post-effective amendments and supplements to such Registration Statement and
the Prospectus included therein as may be necessary to effect and maintain
the effectiveness of such Registration Statement for the applicable
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period specified herein and furnish to the Stockholders copies of any such
supplement or amendment prior to its being used or filed with the
Commission;
(iii) for a reasonable period prior to the filing of such Registration
Statement, and throughout the Effectiveness Period, make available for
inspection by the Counsel and the counsel for the managing underwriters such
financial and other information and books and records of the Company, and
cause the officers, employees, counsel and independent certified public
accountants of the Company to respond to such inquiries, as shall be
reasonably necessary, in the judgment of the respective counsel referred to
in such Section, to conduct a reasonable investigation within the meaning of
Section 11 of the Securities Act; provided, however, that each such party
shall be required to maintain in confidence and not to disclose to any other
person any information or records reasonably designated by the Company in
writing as being confidential, until such time as (A) such information
becomes a matter of public record (whether by virtue of its inclusion in
such Registration Statement or otherwise), or (B) such person shall be
required so to disclose such information pursuant to a subpoena or order of
any court or other governmental agency or body having jurisdiction over the
matter (subject to the requirements of such order, and only after such
person shall have given the Company prompt written notice of such
requirement), or (C) such information is required to be set forth in such
Registration Statement or the Prospectus included therein or in an amendment
to such Registration Statement or an amendment or supplement to such
Prospectus in order that such Registration Statement, Prospectus, amendment
or supplement, as the case may be, does not contain an untrue statement of a
material fact or omit to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing;
(iv) notify the Stockholders and the managing underwriters thereof and,
if requested by any such person, confirm such advice in writing, (A) when
such Registration Statement or the Prospectus included therein or any
Prospectus amendment or supplement or post-effective amendment has been
filed, and, with respect to such Registration Statement or any
post-effective amendment, when the same has become effective, (B) of any
comments by the Commission and by the blue sky or securities commissioner or
regulator of any state with respect thereto or any request by the Commission
for amendments or supplements to such Registration Statement or Prospectus
or for additional information, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of such Registration Statement or
the initiation or threatening of any proceedings for that purpose, (D) if at
any time the representations and warranties of the Company contemplated by
Section 3(a)(xi) hereof cease to be true and correct in all material
respects, (E) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose, or (F) at any time when a Prospectus is required to be
delivered under the Securities Act, that such Registration Statement,
Prospectus, Prospectus amendment or supplement or post-effective amendment,
or any document incorporated by reference in any of the foregoing, contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(v) use its reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of such Registration Statement or any
post-effective amendment thereto at the earliest practicable date;
(vi) if requested by the managing underwriters or the holders of a
majority of the Registrable Securities covered by the Registration,
incorporate in a Prospectus supplement or post-effective amendment such
information as is required by the applicable rules and regulations of the
Commission and as such managing underwriters or such holders specify should
be included therein relating to the terms of the sale of such Registrable
Securities, including, without limitation, information with
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<PAGE>
respect to the principal amount of Registrable Securities being sold by such
holders or to any underwriters, the name and description of such holders or
underwriter, the offering price of such Registrable Securities and any
discount, commission or other compensation payable in respect thereof, the
purchase price being paid therefor by such underwriters and with respect to
any other terms of the offering of the Registrable Securities to be sold by
such holders or to such underwriters; and make all required filings of such
Prospectus supplement or post-effective amendment after notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;
(vii) furnish to each Stockholder, each underwriter of holders of
Registrable Securities participating in the Registration thereof and the
Counsel an executed copy of such Registration Statement, each such amendment
or supplement thereto (in each case, upon request, including all exhibits
thereto and documents incorporated by reference therein) and furnish each
such holder and underwriter such number of copies of the Prospectus included
in such Registration Statement (including each preliminary Prospectus and
any summary Prospectus) as such holder or underwriter may reasonably
request; the Company hereby consents to the use of such Prospectus
(including such preliminary and summary Prospectus) and any amendment or
supplement thereto by each such holder and underwriter, in each case in the
form most recently provided to such party by the Company, in connection with
the offering and sale of the Registrable Securities covered by the
Prospectus (including such preliminary and summary Prospectus) or any
supplement or amendment thereto;
(viii) use its reasonable efforts to (A) register or qualify the
Registrable Securities to be included in such Registration Statement under
such state securities laws or blue sky laws of such jurisdictions as any
holder of such Registrable Securities and underwriter thereof shall
reasonably request, (B) keep such registrations or qualifications in effect
and comply with such laws so as to permit the continuance of offers, sales
and dealings therein in such jurisdictions during the period such
Registration Statement is required to be kept effective and for so long as
may be necessary to enable any such holder or underwriter to complete its
distribution of Securities pursuant to such Registration Statement as
contemplated hereby and (C) take any and all other actions as may be
reasonably necessary or advisable to enable each such holder and underwriter
to consummate the disposition in such jurisdictions of such Registrable
Securities; PROVIDED, HOWEVER, that the Company shall not be required for
any such purpose to (I) qualify as a foreign corporation in any jurisdiction
where it would not otherwise be required to qualify but for the requirements
of this Section 3(a)(viii), (II) consent to general service of process in
any such jurisdiction, (III) subject itself to taxation in any such
jurisdiction or (IV) make any changes to the Company's Certificate of
Incorporation or By-laws or any agreement between the Company and its
stockholders;
(ix) cooperate with the holders of the Registrable Securities and the
managing underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which
Registrable Securities shall not bear any restrictive legends; and enable
such Registrable Securities to be registered in such names as the managing
underwriters may request at least two business days prior to any sale of the
Registrable Securities to the underwriters;
(x) enter into one or more underwriting agreements, or similar
agreements, as appropriate, with customary provisions applicable to such
agreements, PROVIDED that any such underwriting agreements shall contain an
agreement of the underwriters to indemnify and hold harmless the Company
against any and all losses, claims, damages, and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement or Prospectus relating to the Registrable
Securities if a copy of the current Prospectus, as amended or supplemented,
was furnished to the underwriters and/or the holders of such Registrable
Securities by the Company but was not provided to a purchaser and such
current Prospectus would have cured the defect giving rise to such loss,
claim, damage or liability, or shall contain a substantially similar
agreement acceptable to the Company; and
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<PAGE>
(xi) (A) make such representations and warranties to the holders of
such Registrable Securities and the underwriters thereof in form, substance
and scope as are customarily made in connection with an offering of equity
securities pursuant to a Registration Statement filed on the form applicable
to the Registration; (B) obtain an opinion of counsel to the Company in
customary form and covering such matters, of the type customarily covered by
such an opinion, as the managing underwriters, and as the holders of at
least a majority in aggregate principal amount of the Registrable Securities
covered by the Registration, may reasonably request, addressed to such
holder or holders and the underwriters thereof; (C) obtain "comfort" letters
and updates thereof from the independent certified public accountants of the
Company addressed to the selling holders of Registrable Securities and the
underwriters thereof, such letters to be in customary form and covering
matters of the type customarily covered in "comfort" letters to underwriters
in connection with underwritten offerings; (D) deliver such documents and
certificates, including officer's certificates, as may be reasonably
requested by the holders of at least a majority in aggregate principal
amount of the Registrable Securities being sold and the managing
underwriters thereof to evidence the accuracy of the representations and
warranties made pursuant to clause (A) above and the compliance with or
satisfaction of any agreements or conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (E) undertake
such obligations relating to expense reimbursement, indemnification and
contribution as are provided in Sections 4 and 5 hereof.
(b) In the event that the Company would be required, pursuant to Section
3(a)(iv)(F) above, to notify the selling holders of Registrable Securities, and
the managing underwriters thereof, the Company shall prepare and furnish to each
such holder and to each underwriter a reasonable number of copies of a
Prospectus supplemented or amended so that, as thereafter delivered to
purchasers of Registrable Securities, such Prospectus shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing. Each holder of Registrable Securities
agrees that upon receipt of any notice from the Company pursuant to Section
3(a)(iv)(F) hereof, such holder shall forthwith discontinue the disposition of
Registrable Securities pursuant to the Registration Statement applicable to such
Registrable Securities until such holder shall have received copies of such
amended or supplemented Prospectus, and if so directed by the Company, such
holder shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies, then in such holder's possession of the Prospectus
covering such Registrable Securities at the time of receipt of such notice. In
the event the Company shall give such notice, the Company shall extend the
period during which such Registration Statement shall be maintained effective as
provided in Section 2(a) hereof by the number of days during the period from and
including the date of the giving of such notice to the date when the Company
shall make available to each holder of Registrable Securities covered by the
Registration Statement such amended or supplemented Prospectus.
(c) The Company may require each holder of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such holder (and, in the case of Stanley H. Durwood,
regarding DI, its subsidiaries (other than the Company), American Associated
Enterprises, a Missouri limited partnership ("AAE"), the 1989 Trust and the 1992
Trust) and the method of distribution of such Registrable Securities as the
Company may from time to time reasonably request in writing. Each such holder
agrees to notify the Company as promptly as practicable of any inaccuracy or
change in information previously furnished by such holder to the Company or of
the occurrence of any event in either case as a result of which any Prospectus
relating to such registration contains or would contain an untrue statement of a
material fact regarding such holder or the method of distribution of such
Registrable Securities or omits to state any material fact regarding such holder
or the intended method of distribution of such Registrable Securities required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and promptly to furnish to the
Company any additional information required to correct and update any previously
furnished
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information or required so that such Prospectus shall not contain, with respect
to such holder or the method of distribution of such Registrable Securities, an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(d) In connection with the Registration, the Family Stockholders (other than
the 1992 Trust and the 1989 Trust) acting by majority vote (for which purpose
each such Family Stockholder shall have one vote) thereby shall designate a
single counsel (the "Counsel"), which shall be reasonably satisfactory to the
Company, to represent the collective interests of all of the holders of the
Registrable Securities covered by the Registration Statement in the Registration
and in their dealings with the Company.
(e) The Company may require each holder of Registrable Securities covered by
a Registration Statement promptly to furnish in writing to the Company such
information regarding such holder (and, in the case of Stanley H. Durwood,
regarding DI, its subsidiaries (other than the Company), AAE, the 1989 Trust and
the 1992 Trust), the plan of distribution of the Registrable Securities and
other information as the Company may from time to time reasonably request or as
may be legally required in connection with such Registration.
Section 4. REGISTRATION EXPENSES.
Stanley H. Durwood, the 1989 Trust, the 1992 Trust and Delta shall bear and
pay (jointly and severally), promptly upon request being made therefor, all
expenses incident to the Company's performance of or compliance with this
Agreement whether or not the public offering contemplated by the Registration is
consummated, including, without limitation, (a) all Commission and any NASD
registration and filing fees and expenses, (b) all fees and expenses in
connection with the qualification of the Registrable Securities for offering and
sale under the state securities and blue sky laws referred to in Section
3(a)(viii) hereof, including reasonable fees and disbursements of counsel for
the underwriters in connection with such qualifications (in the event that such
counsel performs such functions), (c) all expenses relating to the preparation,
printing, distribution and reproduction of the Registration Statement required
to be filed hereunder, each Prospectus included therein or prepared for
distribution pursuant hereto, each amendment or supplement to the foregoing, the
certificates representing the Registrable Securities and all other documents
relating hereto, (d) messenger and delivery expenses, (e) fees and expenses of
any escrow agent or custodian, (f) fees, disbursements and expenses of counsel
and independent certified public accountants of the Company (including the
expenses of any opinions or "comfort" letters required by or incident to such
performance and compliance), and fees, expenses and disbursements of any other
persons, including special experts, retained by the Company in connection with
such registration (collectively, the "Registration Expenses"). Each holder of
the Registrable Securities being registered severally shall also pay (i) its
respective pro rata portion of all underwriting discounts and commissions
attributable to the sale of such Registrable Securities and the reasonable fees
and disbursements of the Counsel and (ii) the entire amount of the fees and
expenses of any counsel or other advisors or experts retained by such holder.
The Company shall pay all of its internal expenses (including, without
limitation, all salaries and expenses of the Company's officers and employees
performing legal or accounting duties).
Section 5. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall, and it hereby
agrees to, indemnify and hold harmless each holder of Registrable Securities to
be included in the Registration (other than Stanley H. Durwood, the 1992 Trust
and the 1989 Trust) from and against any and all losses, claims, damages and
liabilities to which such holder may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages and liabilities (or actions
in respect thereof) and related expenses (including without limitation
reasonable attorneys' fees and expenses) ("Losses") arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in a Registration Statement under which such Registrable Securities
were registered under the Securities Act, or any preliminary, final or summary
Prospectus contained therein or furnished by the Company to
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any such holder, or any amendment or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein a material fact
necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that
(A) the Company shall not be obligated to indemnify any such person in any such
case to the extent that any such Losses are caused by an untrue statement or
alleged untrue statement or omission or alleged omission made in such
Registration Statement, or preliminary, final or summary Prospectus, or
amendment or supplement based upon written information furnished to the Company
by any holder of Registrable Securities expressly for use therein, (B) the
Company shall not be liable to any such holder under the indemnity agreement in
this subsection (a) with respect to any preliminary Prospectus to the extent
that any such Loss of such holder results from the fact that such person sold
Registrable Securities to a person as to whom it shall be established that there
was not sent or given at or prior to the written confirmation of such sale, a
copy of the Prospectus or of the Prospectus as then amended or supplemented if
the Company has previously furnished copies thereof in sufficient quantity to
such holder or underwriter and the loss, claim, damage or liability of such
holder or underwriter results from an untrue statement or omission of a material
fact contained in the preliminary Prospectus which was corrected in the
Prospectus or in the Prospectus as amended or supplemented and (C) the Company
shall not be obligated to indemnify any such holder with respect to any sales
occurring after the Company has given notice under Section 3(a)(iv)(F) to such
holder and the managing underwriters and prior to the delivery by the Company of
any amended or supplemented Prospectus.
(b) INDEMNIFICATION BY THE HOLDERS. Each Stockholder shall, and hereby
agrees to, severally and not jointly, indemnify and hold harmless the Company,
and all other holders of Registrable Securities, against any Losses to which the
Company or such other holders of Registrable Securities may become subject,
under the Securities Act or otherwise, to the same extent as the foregoing
indemnity by the Company contained in (a), but only with reference to
information relating to such Stockholder furnished to the Company by such
Stockholder expressly for use in such Registration Statement, or any
preliminary, final or summary Prospectus and, where such Stockholder is Stanley
H. Durwood, the 1989 Trust or the 1992 Trust, with reference to information
relating to DI, its subsidiaries (other than the Company), AAE, the 1989 Trust,
the 1992 Trust and Stanley H. Durwood; provided, however, that no such holder
shall be required to indemnify under this Section 5(b) for any amounts in excess
of the dollar amount of the proceeds to be received by such holder from the sale
of such holder's Registrable Securities pursuant to such Registration. Such
information shall be deemed to have been so furnished for use therein by a
Stockholder if it relates to such Stockholder (or, in the case of Stanley H.
Durwood, the 1989 Trust or the 1992 Trust, where it relates to Stanley H.
Durwood, the 1989 Trust, the 1992 Trust, DI, its subsidiaries (other than the
Company) or AAE) and if such Registration Statement was available for review by
such Stockholder (or the legal counsel for such Stockholder) a reasonable time
before being filed and not objected to in writing by such Stockholder prior to
the filing thereof.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party
under subsection (a) or (b) above of written notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 5, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall relieve it from liability which it may have to any indemnified party
only to the extent the indemnifying party is prejudiced thereby. In case any
such action shall be brought against any indemnified party and it shall notify
an indemnifying party of the commencement thereof, such indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
such indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, such
indemnifying party shall pay the fees and disbursements of such counsel and
shall not be liable to such indemnified party for any legal expenses of other
counsel or any other expenses, in each case subsequently incurred by such
indemnified party unless (i) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel or (ii) the
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named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties. Such firm
shall be designated in writing by the managing underwriter if the named parties
to such proceeding include the managing underwriter and by the Family
Stockholders (other than the 1992 Trust and the 1989 Trust) acting by majority
vote (in which each such Family Stockholder shall have one vote) in the case of
parties indemnified pursuant to paragraph (a) above and by the Company in the
case of parties indemnified pursuant to paragraph (b) above. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent not to be unreasonably withheld, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. No indemnifying party shall,
without the prior written consent of the indemnified party not to be
unreasonably withheld, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) CONTRIBUTION. Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 5(a) or Section 5(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any Losses referred to therein, then each indemnifying party under such
paragraph, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by such indemnified party as a result
of such Losses in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party and the indemnified party,
but also the relative fault of the indemnifying party and the indemnified party
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by such indemnifying party or by such indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
Notwithstanding the provisions of this Section 5(d), no holder shall be
required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds received by such holder from the sale of any Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) exceeds the amount of any damages which such holder has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The holders' obligations in this Section 5(d) to contribute
shall be several in proportion to the principal amount of Registrable Securities
registered or underwritten, as the case may be, by them and not joint.
(e) The obligations of the Company under this Section 5 shall extend, upon
the same terms and conditions, to each officer, director and partner of each
holder and each person, if any, who controls any holder within the meaning of
either Section 20 of the Exchange Act or Section 15 of the Securities Act; and
the obligations of the Stockholders contemplated by this Section 5 shall be in
addition to any liability which the Stockholders may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of the
Company (including any person who, with his consent, is named in any
Registration Statement as about to become a director of the Company) and to each
person, if any, who controls the Company within the meaning of the Securities
Act.
A1-40
<PAGE>
(f) The obligations of the Company and each Stockholder under this Section
5 shall terminate on the Termination Date (as defined below), except that such
obligations shall survive in respect to any claim for indemnification made under
this Section 5 prior to the Termination Date until such claim for
indemnification is finally resolved. As used herein "Termination Date" means the
March 31 that is two years after the March 31 occurring immediately after the
date on which the Effective Time (defined in the Merger Agreement) occurs.
Section 6. UNDERWRITING REQUIREMENTS.
Each holder of Registrable Securities hereby agrees (i) to sell such
holder's Registrable Securities on a basis consistent with this Agreement and as
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (ii) to complete and execute all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
Section 7. MISCELLANEOUS.
(a) SPECIFIC PERFORMANCE. The parties hereto acknowledge that there may be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder and that each party may be irreparably harmed by any such failure, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under this Agreement in
accordance with the terms and conditions of this Agreement, in any court of the
United States or any State thereof having jurisdiction.
(b) NOTICES. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: if to the Company, to it
at 106 West 14th Street, Kansas City, Missouri 64101, Attention: Corporate
Secretary, if to Delta, to it at 106 West 14th Street, Kansas City, Missouri
64101, and if to a Stockholder, to such Stockholder at the address set forth on
the signature page hereof next to such Stockholder's signature, provided that
such addresses may be changed by written notice as provided in this paragraph.
Information copies of all notices given to a Stockholder (other than Stanley H.
Durwood, the 1992 Trust or the 1989 Trust) or to Delta shall be given to:
<TABLE>
<S> <C>
Robert C. Kopple, Esq.
Kopple & Klinger
2029 Century Park East
Suite 1040
Los Angeles, CA 90067
Glenn Kurlander, Esq.
Schiff Hardin & Waite
150 East 52nd Street
Suite 2900
New York, New York 10022
Information copies of all notices
given
to Stanley H. Durwood, the 1992
Trust, the 1989 Trust, or Delta
should be given to: Raymond F. Beagle, Jr., Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, 24th Floor
Kansas City, Missouri 64108-2684
</TABLE>
A1-41
<PAGE>
<TABLE>
<S> <C>
Information copies of all notices
given
to the Company should be given to: Charles J. Egan, Jr., Esq.
Hallmark Cards, Incorporated
2501 McGee Trafficway
Kansas City, MO 64141-6126
The Honorable Paul E. Vardeman
Polsinelli, White, Vardeman &
Shalton
Suite 1000, Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
</TABLE>
(c) THIRD PARTY BENEFICIARIES: HOLDERS ENTITLED AND BOUND. This agreement
shall be binding upon and inure to the benefit of the parties, their successors,
heirs, legatees, devisees and personal and legal representatives, and any
transferee that is a Permitted Assignee. No party may assign its rights under
this Agreement (except to a Permitted Assignee as provided herein) without the
consent of the other parties hereto.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) SURVIVAL. The respective indemnities, agreements, representations and
warranties and each other provision set forth in this Agreement or made pursuant
hereto shall remain in full force and effect regardless of any investigation (or
statement as to the results thereof) made by or on behalf of any holder of
Registrable Securities, any director, officer or partner of such holder, any
agent or underwriter or any director, officer or partner thereof, or any
controlling person of any of the foregoing, and shall survive the transfer of
Registrable Securities by such holder.
(f) LAW GOVERNING; CONSENT TO JURISDICTION.
(I) This Agreement shall be governed by and construed in accordance with
the laws of the State of Missouri without giving effect to the conflicts of laws
principles thereof.
(II) Each party hereto hereby consents to, and confers exclusive
jurisdiction upon, the courts of the State of Missouri and the Federal courts of
the United States of America located in the City of Kansas City, Missouri, and
appropriate appellate courts therefrom, over any action, suit or proceeding
arising out of or relating to this Agreement. Each party covenants that it will
not commence any action, suit or proceeding arising out of or relating to this
Agreement in any other jurisdiction. Nothing in this paragraph shall affect the
rights of a party to enforce a judgment rendered by the courts referred to in
the first sentence of this paragraph in any other jurisdiction. Each party
hereto hereby waives, and agrees not to assert, as a defense in any such action,
suit or proceeding that it is not subject to such jurisdiction or that such
action, suit or proceeding may not be brought or is not maintainable in said
courts or that this Agreement may not be enforced in or by said courts or that
its property is exempt or immune from execution, that the suit, action or
proceeding is brought in an inconvenient forum, or that the venue of the suit,
action or proceeding is improper. Service of process in any such action, suit or
proceeding may be served on any party anywhere in the world, whether within or
without the State of Missouri by mailing a copy thereof by registered or
certified mail, postage prepaid, to such party at its address provided in
Section 7(b) of this Agreement, provided that service of process may be
accomplished in any other manner permitted by applicable law.
A1-42
<PAGE>
(g) HEADINGS. The descriptive headings of the several Sections and
paragraphs of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
(h) ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Stock Agreement, the
Indemnification Agreement and the Merger Agreement and, with respect to the
Family Stockholders, that certain Durwood Family Settlement Agreement dated as
of January 22, 1996 contain the entire understanding of the parties with respect
to the transactions contemplated hereby. This Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter, except that the Durwood Family Settlement Agreement shall not be deemed
to be amended by this Agreement and shall remain in full force and effect. This
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Company and the
Family Stockholders acting by majority vote (for which purpose each Family
Stockholder (other than the 1992 Trust and the 1989 Trust) shall have one vote).
Each holder of any Registrable Securities at the time or thereafter outstanding
shall be bound by any amendment or waiver effected pursuant to this Section
7(h), whether or not any notice, writing or marking indicating such amendment or
waiver appears on such Registrable Securities or is delivered to such holder.
(i) INSPECTION. For so long as this Agreement shall be in effect, this
Agreement and a complete list of the names and addresses of all the holders of
Registrable Securities shall be made available for inspection and copying on any
business day by any holder of Registrable Securities at the offices of the
Company at the address thereof set forth in Section 7(b) above.
(j) SEVERABILITY. In the event that any one or more of the provisions
contained in this Agreement, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
A1-43
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
<TABLE>
<S> <C> <C>
AMC ENTERTAINMENT INC.
By:
-----------------------------------------
Peter C. Brown
PRESIDENT
DELTA PROPERTIES, INC.
By:
-----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ADDRESS
---------------------------------------
<C> <S>
Suite 1700
Power & Light Building
------------------------------------------- 106 West 14th Street
Stanley H. Durwood P.O. Box 419615
Kansas City, Missouri 64141-6615
------------------------------------------- 1323 Granite Creek Drive Blue Springs,
Carol D. Journagan MO 64015
------------------------------------------- 3001 West 68th Street
Edward D. Durwood Shawnee Mission, KS 66208
------------------------------------------- P.O. Box 7208
Thomas A. Durwood Rancho Santa Fe, CA 92067
------------------------------------------- 187 Chestnut Hill Road
Elissa D. Grodin Wilton, CT 06897
------------------------------------------- 655 N.W. Altishan Place
Brian H. Durwood Beaverton, OR 97006
------------------------------------------- 666 West End Avenue
Peter J. Durwood New York, NY 10025
Suite 1700
Power & Light Building
------------------------------------------- 106 West 14th Street
Stanley H. Durwood, as trustee of the 1992 Trust P.O. Box 419615
Kansas City, Missouri 64141-6615
Suite 1700
Power & Light Building
------------------------------------------- 106 West 14th Street
Stanley H. Durwood, as trustee of the 1989 Trust P.O. Box 419615
Kansas City, Missouri 64141-6615
</TABLE>
A1-44
<PAGE>
EXHIBIT A TO REGISTRATION AGREEMENT
<TABLE>
<S> <C> <C>
Stanley H. Durwood *
1989 Trust *
1992 Trust *
--------------------------
500,000 shares,
collectively
- --------------
Carol D. Journagan 416,666.67 shares
Edward D. Durwood 416,666.67 shares
Thomas A. Durwood 416,666.67 shares
Elissa D. Grodin 416,666.67 shares
Brian H. Durwood 416,666.67 shares
Peter J. Durwood 416,666.67 shares
</TABLE>
A1-45
<PAGE>
EXHIBIT D TO MERGER AGREEMENT
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated as of March 31, 1997 by (i) AMC
Entertainment Inc., a Delaware corporation ("AMCE"), (ii) Stanley H. Durwood,
individually, and as trustee of the 1992 Durwood, Inc. Voting Trust dated
December 12, 1992 (the "1992 Trust") and as trustee of the Trust created
pursuant to the Stanley H. Durwood Trust Agreement dated August 14, 1989 (the
"1989 Trust"), Carol D. Journagan, Edward D. Durwood, Thomas A. Durwood, Elissa
D. Grodin, Brian H. Durwood and Peter J. Durwood (all persons and entities
listed in this clause (ii) are referred to herein as the "Durwood Parties") and
(iii) Delta Properties, Inc., a Missouri corporation ("Delta"). Capitalized
terms used herein and not defined herein are used as defined in the Merger
Agreement (as defined below).
WHEREAS, contemporaneously with the execution and delivery hereof AMCE and
Durwood, Inc., a Missouri corporation ("DI"), are entering into an Agreement and
Plan of Merger and Reorganization dated as of the date hereof (the "Merger
Agreement") pursuant to which, subject to the conditions and the terms contained
therein, DI would merge with and into AMCE, with AMCE being the surviving
corporation; and
WHEREAS, the Durwood Parties are direct and indirect stockholders of DI and
desire that the Merger be consummated; and
WHEREAS, prior to or following the execution and delivery hereof, DI has
transferred or will transfer to Delta certain of its assets and the Durwood
Parties and DI would not be willing to enter into this Agreement unless Delta
undertakes certain obligations set forth herein and in consideration for such
transfer to it; and
WHEREAS, the Registration Statement and Proxy Statement will contain
information regarding AMCE, DI and certain Durwood Parties and entities and
persons affiliated with the Durwood Parties; and
WHEREAS, the Merger Agreement will contain representations, warranties,
covenants and agreements of AMCE and DI; and
WHEREAS, AMCE would not be willing to enter into the Merger Agreement and
consummate the Merger, and the Durwood Parties would not be willing to cause DI
to enter into the Merger Agreement and consummate the Merger, unless the parties
hereto agree to indemnify each other on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants set forth herein, the parties hereto do hereby agree and covenant
as follows:
1. INDEMNITIES REGARDING REGISTRATION STATEMENT AND PROXY STATEMENT.
(a) Each Durwood Party severally agrees to provide AMCE with such
information as to such Durwood Party as is necessary for AMCE to complete the
Registration Statement and the Offering Materials (as defined below) in
accordance with the requirements of the Securities Act. Each Durwood Party
severally covenants that the information supplied or to be supplied by such
Durwood Party (and, in the case of Stanley H. Durwood, the 1992 Trust and the
1989 Trust) in writing for inclusion in, and which is included in, the
Registration Statement or any amendment or supplement thereto, or the Offering
Materials which concerns such Durwood Party (the "Durwood Party Information"),
will not, at the respective times such documents are filed with the SEC and at
the Effective Time, and, in the case of the Registration Statement or any
amendment or supplement thereto, when the same becomes effective, and, in the
case of the Offering Materials, at the time of mailing thereof to AMCE's
stockholders, contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any Durwood Party
Information regarding a Durwood Party included in any such document will be
deemed
A1-46
<PAGE>
to have been so supplied in writing by such Durwood Party specifically for
inclusion therein if such document was available for review by such Durwood
Party (or the legal counsel of such Durwood Party) a reasonable time before such
document was filed and not objected to in writing by such Durwood Party prior to
the filing thereof. If at any time prior to the Effective Time a Durwood Party
obtains actual knowledge (without duty of investigation) of any event or
circumstance relating to the Durwood Entities (as defined below) which should be
set forth in an amendment or supplement to the Registration Statement or
Offering Materials, as required by applicable law, such Durwood Party shall
promptly inform AMCE. AMCE and its affiliates, officers, directors, employees,
agents, successors and assigns shall be indemnified and held harmless by each
Durwood Party severally and in the case of Durwood Party Information concerning
Stanley H. Durwood, the 1992 Trust or the 1989 Trust, by the SHD Indemnitors (as
defined below), jointly and severally, for any and all Losses (as defined
herein) actually suffered or incurred by them arising out of or resulting from
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or the Offering Materials, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, if the statement or omission was made in
reliance upon and in conformity with the Durwood Party Information supplied by
such Durwood Party (or in the case of indemnification by the SHD Indemnitors, by
any SHD Indemnitor).
(b) Stanley H. Durwood, the 1992 Trust and the 1989 Trust (the "SHD
Indemnitors") agree (jointly and severally) to provide AMCE with such
information as to DI, Subsidiaries of DI (other than AMCE) and American
Associated Enterprises, a Missouri limited partnership ("AAE") (DI, Subsidiaries
of DI (other than AMCE) and AAE are referred to as the "DI Persons" and the
Durwood Parties and the DI Persons are referred to as the "Durwood Entities") as
is necessary for AMCE to complete the Registration Statement and the Offering
Materials in accordance with the requirements of the Securities Act. The SHD
Indemnitors covenant that the information supplied or to be supplied in writing
for inclusion in, and which is included in, the Registration Statement or any
amendment or supplement thereto, or the Offering Materials, which concerns the
DI Persons (the "DI Person Information"), will not, at the respective times such
documents are filed with the SEC and at the Effective Time, and, in the case of
the Registration Statement or any amendment or supplement thereto, when the same
becomes effective, and, in the case of the Offering Materials, at the time of
mailing thereof to AMCE's stockholders, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Any DI Person Information included in any such document will be
deemed to have been so supplied in writing specifically for inclusion therein if
such document was available for review by Stanley H. Durwood (or his legal
counsel) a reasonable time before such document was filed and not objected to in
writing by Stanley H. Durwood prior to the filing thereof. AMCE and its
affiliates, officers, directors, employees, agents, successors and assigns shall
be indemnified and held harmless by the SHD Indemnitors (jointly and severally)
for any and all Losses actually suffered or incurred by them arising out of or
resulting from any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Offering Materials, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, if the statement or
omission was made in reliance upon and in conformity with the DI Person
Information.
(c) Each Durwood Party (other than the SHD Indemnitors) shall be indemnified
and held harmless by AMCE for any and all Losses actually suffered or incurred
by them arising out of or resulting from any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Offering Materials, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, in each case except to the extent that the statement or omission was
A1-47
<PAGE>
made in reliance upon and in conformity with the Durwood Party Information or
the DI Person Information.
(d) As used herein, "Offering Materials" means the Proxy Statement and
prospectus relating to the Merger included in the Registration Statement, and
each of the other documents mailed to stockholders of AMCE in connection with
the Merger.
(e) If for any reason, other than in accordance with the terms of this
Section 1, the indemnification provided for in this Section 1 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a), (b)
or (c) above in respect of any Losses referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect its relative fault in connection with the statements or
omissions which resulted in such Losses, as well as any other relevant equitable
considerations, but not in excess of amounts, if any, such indemnifying party
would have been required to pay if such indemnification had been available. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Durwood Parties agree that it would not be just and equitable if
contribution pursuant to this subsection (e) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable consideration referred to above in this subsection (e). No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
(f) The obligations of AMCE under this Section 1 shall be in addition to
any liability which AMCE may otherwise have, and the obligations of the Durwood
Parties under this Section 1 shall be in addition to any liability which the
Durwood Parties may otherwise have.
(g) The obligations of AMCE and the Durwood Parties under this Section 1
shall terminate on the Termination Date (as defined below), except that such
obligations shall survive in respect to any claim for indemnification made under
this Section 1 prior to the Termination Date until such claim for
indemnification is finally resolved. As used herein "Termination Date" means the
March 31 that is two years after the March 31 occurring immediately after the
date on which the Effective Time occurs.
2. INDEMNIFICATION FOR BREACHES OF MERGER AGREEMENT AND LIABILITIES.
(a) If the Effective Time occurs, AMCE shall indemnify and hold harmless the
Durwood Parties (other than the SHD Indemnitors) and their Permitted Assignees
(as defined in the form of Registration Agreement attached as Exhibit C to the
Merger Agreement) against and in respect of any and all liabilities, losses,
damages, claims, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) determined on a net after-tax basis ("Losses")
which may be incurred by such Durwood Parties or Permitted Assignees based upon,
resulting from or arising out of the breach of any representation, warranty,
covenant or agreement of AMCE contained in the Merger Agreement (for this
purpose, and notwithstanding Section 6.5 of the Merger Agreement, as if all
representations, warranties, covenants and agreements had survived the
consummation of the Merger).
(b) If the Effective Time occurs, the SHD Indemnitors shall (jointly and
severally) indemnify and hold harmless AMCE against and in respect of any and
all Losses which may be incurred by AMCE (i) based upon, resulting from or
arising out of the breach of any representation, warranty, covenant or agreement
of DI contained in the Merger Agreement (for this purpose, and notwithstanding
Section 6.5 of the Merger Agreement, as if all representations, warranties,
covenants and agreements had survived the consummation of the Merger) or (ii)
based upon, resulting from, arising out of or constituting any liability or
obligation of DI or its Subsidiaries, known or unknown, fixed, contingent or
otherwise.
A1-48
<PAGE>
(c) If the Effective Time occurs, the SHD Indemnitors and Delta shall
(jointly and severally) pay and indemnify and hold harmless AMCE from and
against all of DI's Expenses and one-half of AMCE's Expenses.
(d) If the Effective Time occurs, the SHD Indemnitors shall (jointly and
severally) indemnify and hold harmless AMCE from and against, (i) any Taxes
attributable to DI or any of its Subsidiaries for taxable periods ending on or
prior to the Effective Time, including without limitation any Taxes attributable
to the transactions contemplated by the Pre-Merger Action Plan, and (ii) all
Losses incurred by AMCE in connection therewith. For purposes of this Agreement,
"Taxes" shall mean all taxes, including, without limitation, all net income,
gross income, gross receipts, sales, use, value-added, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes and customs
duties of any kind whatsoever, together with any interest, penalties and
additions to tax or additional amounts relating thereto, imposed by any
governmental authority (domestic or foreign).
(e) If the Effective Time does not occur, the SHD Indemnitors and Delta
shall (jointly and severally) indemnify and hold harmless AMCE against and in
respect of Losses which may be incurred by AMCE as a result of the breach by DI
of any representation, warranty, covenant or agreement in the Merger Agreement
(without regard to Section 6.4 thereof).
(f) If the Effective Time occurs, each Durwood Party shall (severally and
not jointly) indemnify and hold harmless AMCE against and in respect of Losses
which may be incurred by AMCE as a result of the breach by such Durwood Party of
a representation, warranty, covenant or agreement contained in Article VI of the
Stock Agreement.
(g) Each SHD Indemnitor agrees that he or it will not transfer Voting
Securities (as defined in the Stock Agreement) to any person or entity (other
than in the Secondary Offering (as defined in the form of Stock Agreement
attached as Exhibit B to the Merger Agreement), to a Charitable Assignee (as
defined below) or otherwise in arms-length sales for fair consideration) unless
the transferee agrees by instrument in form and substance satisfactory to AMCE
to be bound by the provisions of this Agreement as an SHD Indemnitor and to
guarantee the performance by Stanley H. Durwood, the 1992 Trust and the 1989
Trust of their obligations under this Agreement and under Section 5 of the
Registration Agreement and Section 5.3 of the Stock Agreement (an "Instrument");
PROVIDED, HOWEVER, that an SHD Indemnitor may not transfer more than 5% of the
shares of AMCE Class B Stock or AMCE Common Stock received by it in the Merger
(or AMCE Common Stock received upon conversion of such AMCE Class B Stock) to
Charitable Assignees unless the Charitable Assignees receiving shares in excess
of such threshold enter into an Instrument. As used herein, a "Charitable
Assignee" of a Stockholder shall mean any charitable organization, including
charitable remainder and charitable lead trusts, a transfer of property to which
by such Stockholder would qualify, at least in part, for an income, gift or
estate tax charitable deduction under the Tax Code.
(i) The obligations of AMCE, Delta and the Durwood Parties under this
Section 2 shall terminate on the Termination Date, except that such obligations
shall survive in respect to any claim for indemnification made under this
Section 2 prior to the Termination Date until such claim for indemnification is
finally resolved.
(j) AMCE agrees that it will not seek to hold Delta's stockholders liable
(in their capacities as such) for Delta's obligations under or arising from this
Agreement, the Merger Agreement, the Stock Agreement or the Registration
Agreement or the transactions contemplated hereby or thereby.
3. PROCEDURE FOR INDEMNIFICATION.
(a) The party seeking indemnification pursuant to Sections 1 or 2 is
referred to as the "Indemnified Party" and the party from whom indemnification
is sought under Sections 1 or 2 is referred to as the "Indemnifying Party."
A1-49
<PAGE>
(b) The Indemnified Party shall give prompt written notice to the
Indemnifying Party of any claim for indemnification under Sections 1 or 2 above
relating to a claim or demand of a third party with respect to which it is
seeking indemnification hereunder. The failure to give such prompt notice shall
not relieve the Indemnifying Party of its indemnity obligations hereunder with
respect thereto, except to the extent that the Indemnifying Party is materially
prejudiced by such failure. The Indemnifying Party shall have the right to
defend and to direct the defense against any such claim or demand (other than
one made pursuant to Section 2(d)), in its name or in the name of the
Indemnified Party, as the case may be, at the expense of the Indemnifying Party,
and with the counsel selected by the Indemnifying Party and approved by the
Indemnified Party (such approval not to be unreasonably withheld), PROVIDED that
the Indemnifying Party may not settle or compromise any such claim or demand
without the consent of the Indemnified Party (which consent may not be
unreasonably withheld) if injunctive or other equitable relief would be imposed
against the Indemnified Party as a result thereof. Notwithstanding anything in
this Agreement to the contrary, the Indemnified Party shall cooperate with the
Indemnifying Party, and keep the Indemnifying Party fully informed in the
defense of such claim or demand. The Indemnified Party shall have the right to
participate in the defense of any claim or demand with counsel employed by it at
the expense of the Indemnified Party. The Indemnifying Party shall have no
indemnification obligations with respect to any such claim or demand which shall
be settled by the Indemnified Party without the prior written consent of the
Indemnifying Party.
4. OTHER AGREEMENTS
(a) NO AMENDMENT. The Durwood Parties covenant that the Durwood Family
Settlement Agreement dated as of January 22, 1996 by and among Stanley H.
Durwood, in the capacities specified therein, Carol D. Journagan, Edward D.
Durwood, Thomas A. Durwood, Elissa D. Grodin, Brian H. Durwood and Peter J.
Durwood (the "Durwood Family Agreement") will not be amended without the prior
written consent of AMCE, which consent will not be unreasonably withheld. Each
Durwood Party hereby represents and warrants to AMCE that attached hereto as
EXHIBIT A is a true, correct and complete copy of the Durwood Family Agreement
as in effect on the date hereof.
(b) EXECUTION OF OTHER AGREEMENTS. Each Durwood Party agrees to execute
and deliver (and to cause Delta to execute and deliver) the Stock Agreement and
the Registration Agreement at the Closing.
(c) ESCROW AGREEMENT. Each Durwood Party agrees that at the Closing it
will execute and deliver an Escrow Agreement substantially in the form of
Exhibit B hereto pursuant to which such Durwood Party shall deposit in escrow
50% of the shares of AMCE Common Stock and AMCE Class B Stock received in the
Merger by such Durwood Party (plus, in the case of Stanley H. Durwood, the 1989
Trust and the 1992 Trust, collectively, a number of shares of AMCE Class B Stock
equal to the sum of (x) 65% of the number of shares of AMCE Common Stock
received by Harvard in the Merger, plus (y) a number of shares of AMCE Class B
Stock equal to the Specified Percentage (as defined in the form of Stock
Agreement attached as Exhibit B to the Merger Agreement) of the total number of
shares of AMCE Class B Stock and AMCE Common Stock issued in the Merger). Such
shares shall be held in Escrow for a period of two years from the date of the
Closing. Such Durwood Party shall retain the right to vote (subject to the Stock
Agreement) and be entitled to receive all cash dividends or other distributions
paid in respect of shares deposited in Escrow, but all dividends paid in capital
stock of AMCE or other securities shall be held in Escrow until the end of such
two-year period.
(d) NO TRANSFERS. Each Durwood Party agrees that except as set forth in
the Pre-Merger Action Plan, prior to the Merger it will not directly or
indirectly transfer any interest he, she or it has in DI, AAE or AMCE, including
without limitation any right to receive shares of AMCE Common Stock or AMCE
Class B Stock in the Merger.
(e) APPLICATION OF CREDIT AMOUNTS. Credit Amounts (as defined below)
outstanding from time to time shall be applied to satisfy (to the extent of the
Credit Amounts then outstanding) the obligations of the SHD Indemnitors pursuant
to Sections 2(c) and 2(e) of this Agreement, Section 4 of the Registration
Agreement and Section 5.3 of the Stock Agreement (the "Specified Sections"). As
promptly as practicable following the Termination Date, AMCE shall pay to the
SHD Indemnitors an amount equal to the
A1-50
<PAGE>
Credit Amount then outstanding (and not applied to satisfy liabilities under the
Specified Sections), provided that in the event AMCE has made claims pursuant to
the Specified Sections prior to such date that have not been resolved, AMCE may
withhold from such payment the amount of such claims until such claims are
finally resolved (whereupon it shall as promptly as practicable pay to the SHD
Indemnitors any portion of such Credit Amounts not applied to such claims). In
the event that a Credit Amount arises after the Termination Date, AMCE shall
promptly pay to the SHD Indemnitors the amount of such Credit Amount. All
payments to SHD Indemnitors pursuant to this paragraph (e) shall be made pro
rata based on the total number of shares of AMCE Class B Stock received by each
SHD Indemnitor in the Merger. As used herein, "Credit Amounts" shall mean the
amounts of any net tax benefit, as and when finally determined, actually
realized by AMCE from time to time following the Merger solely as a result of
(and which would not have been realized but for) (i) the utilization by AMCE for
federal income tax purposes of DI's alternative minimum tax credit carryforwards
and (ii) the utilization by AMCE for Missouri income tax purposes of DI's
Missouri net operating loss carryforwards.
(f) DI TAX RETURNS. Without limiting the obligations of the SHD
Indemnitors pursuant to Section 2(d) above, AMCE will cause to be prepared and
filed (at the expense of the SHD Indemnitors) all income tax returns of DI not
heretofore filed, and the Durwood Parties and Delta shall make available to AMCE
all books and records of DI necessary in the preparation of such returns. The
SHD Indemnitors shall pay all Taxes due and payable under such returns.
5. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS: Each Durwood Party and
Delta, severally, as to himself, herself or itself, and not jointly, hereby
represents and warrants to AMCE as follows:
(i) Such Durwood Party (or Delta, as the case may be) has full legal
right, power and authority to enter into and perform this Agreement. This
Agreement is a valid and binding obligation of such Durwood Party (or Delta,
as the case may be) enforceable against such Durwood Party (or Delta, as the
case may be) in accordance with its terms, except that such enforcement may
be subject to (x) bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (y) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in
equity or at law).
(ii) Neither the execution and delivery of this Agreement nor the
consummation by such Durwood Party (or Delta, as the case may be) of the
transactions contemplated hereby conflicts with or constitutes a violation
of or default under any statute, law, regulation, order or decree applicable
to such Durwood Party (or Delta, as the case may be), or any material
contract, commitment, agreement, arrangement or restriction of any kind to
which such Durwood Party (or Delta, as the case may be) is a party or by
which such Durwood Party (or Delta, as the case may be) is bound.
(b) REPRESENTATIONS AND WARRANTIES OF AMCE. AMCE hereby represents and
warrants to the Durwood Parties as follows:
(i) AMCE has full legal right, power and authority to enter into and
perform this Agreement. The execution and delivery of this Agreement and the
consummation by AMCE of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on behalf of AMCE. This
Agreement is a valid and binding obligation of AMCE enforceable against AMCE
in accordance with its terms, except that such enforcement may be subject to
(x) bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (y) general principles of equity (regardless
of whether such enforcement is considered in a proceeding in equity or at
law).
(ii) Neither the execution and delivery of this Agreement by AMCE nor
the consummation by AMCE of the transactions contemplated hereby conflicts
with or constitutes a violation of or default under the charter or bylaws of
AMCE, any statute, law, regulation, order or decree applicable to AMCE, or
any material contract, commitment, agreement, arrangement or restriction of
any kind to which AMCE is a party or by which AMCE is bound.
A1-51
<PAGE>
6. NOTICES. Any notice, request, consent, waiver or other communication
required or permitted hereunder shall be effective only if it is in writing and
personally delivered or sent by certified or registered mail, postage prepaid,
addressed as follows:
<TABLE>
<S> <C> <C>
To: AMC Entertainment Inc.: Suite 1700 Power & Light Bldg.
106 West 14th Street
Post Office Box 419615
Kansas City, MO 64141-6615
Attention: Corporate Secretary
To: any Durwood Party: to the address set forth next to
such Durwood Party's name on
the signature page hereof
To: Delta Properties, Inc.: Suite 1700 Power & Light Bldg.
106 West 14th Street
P.O. Box 419615
Kansas City, MO 64141-6615
Attention: Corporate Secretary
</TABLE>
or such other address as may be specified in a notice duly given as provided
herein. Such notice or communication shall be deemed to have been given upon
receipt thereof. Information copies of all notices given a Durwood Party (other
than Stanley H. Durwood, the 1992 Trust or the 1989 Trust) or Delta shall be
given to:
<TABLE>
<S> <C> <C>
Robert C. Kopple, Esq.
Kopple & Klinger
2029 Century Park East
Suite 1040
Los Angeles, A 90067
Glenn Kurlander, Esq.
Schiff Hardin & Waite
150 East 52nd Street
Suite 2900
New York, New York 10022
</TABLE>
Information copies of all notices given to Stanley H. Durwood, the 1992
Trust, the 1989 Trust or Delta should be given to:
<TABLE>
<S> <C> <C>
Raymond F. Beagle, Jr., Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, 24th Floor
Kansas City, Missouri 64108-2684
</TABLE>
Information copies of all notices given to AMCE shall be given to:
<TABLE>
<S> <C> <C>
Charles J. Egan, Jr., Esq.
Hallmark Cards, Incorporated
2501 McGee Trafficway
Kansas City, MO 64141-6126
The Honorable Paul E. Vardeman
Polsinelli, White, Vardeman & Shalton
Suite 1000, Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
</TABLE>
A1-52
<PAGE>
7. WAIVER. No delay or failure on the part of any party in exercising any
rights hereunder, and no partial or single exercise thereof, will constitute a
waiver of such rights or of any other rights hereunder.
8. BINDING EFFECT. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors, assigns,
heirs, legatees, devisees, and personal and legal representations.
9. ENTIRE AGREEMENT. This Agreement, the Merger Agreement, the
Registration Agreement and the Stock Agreement and, with respect to the Durwood
Parties only, the Durwood Family Agreement constitute the entire agreement among
the parties hereto pertaining to the subject matter hereof. This Agreement
supersedes all prior or contemporaneous, written or verbal agreements,
understandings and negotiations in connection herewith, except that the Durwood
Family Agreement shall not be deemed to be amended by this Agreement and shall
remain in full force and effect.
10. AMENDMENTS. This Agreement cannot be modified, amended or terminated,
except as provided by an instrument in writing signed by all the parties hereto;
PROVIDED, HOWEVER, that any provision of this Agreement may be waived only in
writing by the party to be charged with the waiver.
11. SEVERABILITY. If any provision of this Agreement is held to be invalid
or unenforceable by any court of final jurisdiction, it is the intent of the
parties that all other provisions of this Agreement be construed to remain fully
valid, enforceable and binding on the parties.
12. GOVERNING LAW; CONSENT TO JURISDICTION.
(a) This Agreement shall be construed in accordance with, and governed by,
the laws of the State of Missouri without giving the effect to conflicts of laws
principles thereof.
(b) Each party hereto hereby consents to, and confers exclusive jurisdiction
upon, the courts of the State of Missouri and the Federal courts of the United
States of America located in the City of Kansas City, Missouri, and appropriate
appellate courts therefrom, over any action, suit or proceeding arising out of
or relating to this Agreement. Each party covenants that it will not commence
any action, suit or proceeding arising out of or relating to this Agreement in
any other jurisdiction. Nothing in this paragraph shall affect the rights of a
party to enforce a judgment rendered by the courts referred to in the first
sentence of this paragraph in any other jurisdiction. Each party hereto hereby
waives, and agrees not to assert, as a defense in any such action, suit or
proceeding that it is not subject to such jurisdiction or that such action, suit
or proceeding may not be brought or is not maintainable in said courts or that
this Agreement may not be enforced in or by said courts or that its property is
exempt or immune from execution, that the suit, action or proceeding is brought
in an inconvenient forum, or that the venue of the suit, action or proceeding is
improper. Service of process in any such action, suit or proceeding may be
served on any party anywhere in the world, whether within or without the State
of Missouri, by mailing a copy thereof by registered or certified mail, postage
prepaid, to such party at its address provided in Section 6 of this Agreement,
provided that service of process may be accomplished in any other manner
permitted by applicable law.
13. HEADINGS. The headings to the paragraphs to this Agreement are for
convenience only and in no way define, limit or describe the scope or intent of
this Agreement or any party hereto, nor in any other way affect this Agreement
or any part hereof.
14. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one and
the same agreement.
15. ASSIGNMENT. Neither this Agreement nor any of the rights, interests,
or obligations hereunder may be assigned by any party hereto without the prior
written consent of the other party.
A1-53
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed on behalf of AMC
Entertainment Inc. by Peter C. Brown, its President, by Delta and by each
Durwood Party, respectively, on the date first above written.
AMC ENTERTAINMENT INC.
By: /s/ PETER C. BROWN
- --------------------------------------------------------------------------------
Peter C. Brown, President and
Chief Financial Officer
DELTA PROPERTIES, INC.
By: /s/ PETER C. BROWN
- --------------------------------------------------------------------------------
Peter C. Brown, Senior Vice
President
<TABLE>
<S> <C>
Suite 1700
Power & Light Building
106 West 14th Street /s/ STANLEY H. DURWOOD
P.O. Box 419615 --------------------------------------
Kansas City, Missouri 64141-6615 Stanley H. Durwood
/s/ CAROL D. JOURNAGAN
1323 Granite Creek Drive --------------------------------------
Blue Springs, MO 64015 Carol D. Journagan
/s/ EDWARD D. DURWOOD
3001 West 68th Street --------------------------------------
Shawnee Mission, KS 66208 Edward D. Durwood
/s/ THOMAS A. DURWOOD
P.O. Box 7208 --------------------------------------
Rancho Santa Fe, CA 92067 Thomas A. Durwood
/s/ ELISSA D. GRODIN
187 Chestnut Hill Road --------------------------------------
Wilton, CT 06897 Elissa D. Grodin
/s/ BRIAN H. DURWOOD
655 N.W. Altishan Place --------------------------------------
Beaverton, OR 97006 Brian H. Durwood
/s/ PETER J. DURWOOD
666 West End Avenue --------------------------------------
New York, NY 10025 Peter J. Durwood
Suite 1700
Power & Light Building /s/ STANLEY H. DURWOOD
106 West 14th Street --------------------------------------
P.O. Box 419615 Stanley H. Durwood, as trustee of the 1992
Kansas City, Missouri 64141-6615 Trust
Suite 1700
Power & Light Building /s/ STANLEY H. DURWOOD
106 West 14th Street --------------------------------------
P.O. Box 419615 Stanley H. Durwood, as trustee of the 1989
Kansas City, Missouri 64141-6615 Trust
</TABLE>
A1-54
<PAGE>
EXHIBIT B TO INDEMNIFICATION AGREEMENT
ESCROW AGREEMENT
This Escrow Agreement is entered into on [date], by and among (i) AMC
Entertainment Inc., a Delaware corporation ("AMCE"), (ii) Stanley H. Durwood,
individually, and as trustee of the 1992 Durwood, Inc. Voting Trust dated
December 12, 1992 (the "1992 Trust") and as trustee of the Trust created
pursuant to the Stanley H. Durwood Trust Agreement dated August 14, 1989 (the
"1989 Trust"), Carol D. Journagan, Edward D. Durwood, Thomas A. Durwood, Elissa
D. Grodin, Brian H. Durwood and Peter J. Durwood (all persons and entities
listed in this clause (ii) are referred to herein as the "Durwood Parties") and
(iii) , a corporation (the "Escrow Agent").
WHEREAS, AMCE, the Durwood Parties and Delta Properties, Inc., a Missouri
corporation, are parties to an Indemnification Agreement dated as of [insert
date] (the "Indemnification Agreement"); and
WHEREAS, Section 4(c) of the Indemnification Agreement provides that certain
shares of AMCE Common Stock and AMCE Class B Stock be deposited in escrow for
two years; and
WHEREAS, the Escrow Agent is willing to establish an escrow account on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree as follows:
1. The Escrow Agent hereby acknowledges receipt of certificates
representing the shares of AMCE Common Stock and Class B Stock listed on Exhibit
A hereto (the "Shares") from the Durwood Party whose name is set forth next to
such Shares on Exhibit A, in escrow, pursuant to this Escrow Agreement. The
Durwood Parties placing Shares in escrow is referred to herein as the "Owner" of
such Shares and of all Additional Shares (as defined below) issued or paid as
dividends or other distributions thereon. The Escrow Agent agrees to hold and
dispose of the Shares and any Additional Shares in accordance with the terms and
conditions of this Escrow Agreement.
2. The Escrow Agent shall hold the Shares and all shares of capital stock
of AMCE or other securities issued or paid as dividends or other distributions
on the Shares ("Additional Shares") and release them only as set forth in
Section 3 below.
All dividends and other distributions (other than Additional Shares) on
Shares received by the Escrow Agent will be immediately distributed to the Owner
of such Shares. Each Durwood Party severally agrees to immediately forward the
Escrow Agent for deposit in escrow all Additional Shares received by such
Durwood Party while the relevant Shares remain in escrow hereunder.
The Escrow Agent shall maintain a ledger setting forth the number of Shares
placed in escrow by each Durwood Party and all Additional Shares issued in
respect of such Shares and deposited in escrow.
3. The Escrow Agent shall distribute the Shares and Additional Shares as
follows:
(a) Subject to paragraphs (b) and (c) below, all Shares and Additional
Shares shall be released from escrow and distributed to the Durwood Party
that is the Owner thereof promptly following the second anniversary of the
date hereof.
(b) Shares and Additional Shares shall be released from escrow, in whole
or in part, from time to time upon the Escrow Agent's receipt of a joint
written notice of AMCE and the Durwood Party that is the Owner of such
Shares and Additional Shares in accordance with such notice.
(c) If the Escrow Agent is notified of a claim against or in respect of
Shares or Additional Shares or if a claim is made against the Escrow Agent
in respect of Shares or Additional Shares,
A1-55
<PAGE>
such Shares and Additional Shares shall continue to be held, and not
released from escrow, except pursuant to the final unappealable order (or an
order for which the time to appeal has expired without an appeal having been
made) of a court of competent jurisdiction.
4. It is understood and agreed that the duties of the Escrow Agent are
purely ministerial in nature. It is further agreed that:
(a) the Escrow Agent may conclusively rely and shall be protected in
acting or refraining from acting upon any document, instrument, certificate,
instruction or signature believed by it to be genuine and may assume and
shall be protected in assuming that any person purporting to give any notice
or instructions in accordance with this Escrow Agreement or in connection
with any transaction to which this Escrow Agreement relates has been duly
authorized to do so. The Escrow Agent shall not be obligated to make any
inquiry as to the authority, capacity, existence or identity of any person
purporting to have executed any such document or instrument or have made any
such signature or purporting to give any such notice or instructions;
(b) in the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions with respect to the
Shares and Additional Shares which, in its sole opinion, are in conflict
with either other instructions received by it or any provision of the Escrow
Agreement, it shall, without liability of any kind, be entitled to hold the
Shares and Additional Shares pending the resolution of such uncertainty to
the Escrow Agent's sole satisfaction, by final judgment of a court or courts
of competent jurisdiction or otherwise, or the Escrow Agent, at its option,
may, in final satisfaction of its duties hereunder, deposit the relevant
Shares and Additional Shares with the clerk of any other court of competent
jurisdiction;
(c) the Escrow Agent undertakes to perform only such duties as are
expressly set forth herein and shall not be bound in any way by any
agreement between AMCE and the Durwood Parties (whether or not the Escrow
Agent has knowledge thereof);
(d) The Escrow Agent shall not be liable for any action taken by it in
good faith and believed by it to be authorized or within the rights or
powers conferred upon it by this Escrow Agreement (provided that the Escrow
Agent shall be liable for its gross negligence and willful misconduct), and
may consult with counsel of its own choice and shall have full and complete
authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel;
and
(e) the Escrow Agent shall not assume any responsibility or liability
for any transactions between AMCE and the Durwood Parties.
5. AMCE agrees to indemnify the Escrow Agent, its directors, officers,
agents and employees and any person who "controls" the Escrow Agent within the
meaning of Section 15 of the Securities Act of 1933, as amended (collectively
the "Indemnified Parties") against, and hold them harmless from, any and all
loss, liability, cost, damage and expense, including, without limitation, costs
of investigation and reasonable counsel fees and expenses, which any of the
Indemnified Parties may suffer or incur by reason of any action, claim or
proceeding brought against any of the Indemnified Parties, arising out of or
relating in any way to this Escrow Agreement or any transaction to which this
Escrow Agreement relates, other than any action, claim or proceeding to the
extent resulting from the gross negligence or willful misconduct of such
Indemnified Party. The provisions of this paragraph shall survive the
termination of this Escrow Agreement.
6. This Escrow Agreement may be altered, amended or terminated only with
the written consent of AMCE, the Durwood Parties and the Escrow Agent. Should
AMCE and the Durwood Parties attempt to change this Escrow Agreement in a manner
which, in the Escrow Agent's sole opinion, is undesirable, the Escrow Agent may
resign as Escrow Agent upon two weeks' written notice to AMCE and the Durwood
Parties; otherwise, notwithstanding any provision hereof to the contrary, it may
resign as
A1-56
<PAGE>
Escrow Agent at any time upon 60 days' written notice to AMCE and the Durwood
Parties. In the case of the Escrow Agent's resignation, its only duty shall be
to hold and dispose of the Shares and Additional Shares in accordance with the
original provisions of this Escrow Agreement until a successor escrow agent
shall be appointed by AMCE and the Durwood Parties acting by majority vote (in
which each such party shall have one vote) and a written notice of the name and
address of such successor escrow agent shall be given to the Escrow Agent by
AMCE and the Durwood Parties, whereupon the Escrow Agent's only duty shall be to
turn over, in accordance with the written instructions of AMCE and the Durwood
Parties, to the successor escrow agent the Shares and Additional Shares and any
documentation related thereto. In the event that a successor escrow agent shall
not have been appointed and the Escrow Agent shall not have turned over to the
successor escrow agent the Shares and Additional Shares within the time periods
specified above, or the Escrow Agent's written notice of resignation, as the
case may be, the Escrow Agent may deposit the Shares and Additional Shares with
the clerk of any other court of competent jurisdiction, at which time the Escrow
Agent's duties hereunder shall terminate.
7. The Escrow Agent shall be entitled to a fee of [fees to be inserted].
The fees will be payable by AMCE.
8. THIS ESCROW AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF WITHOUT APPLICATION TO THE PRINCIPLES OF
CONFLICTS OF LAWS. This Escrow Agreement shall be binding upon the parties
hereto and their respective successors and assigns; provided, however, that any
assignment or transfer by any party of its rights under this Escrow Agreement
shall be void (as against the Escrow Agent or otherwise) unless:
(a) written notice thereof shall be given to the Escrow Agent, AMCE and
the Durwood Parties; and
(b) the Escrow Agent, AMCE and the Durwood Parties shall have consented,
in writing, to such assignment or transfer.
9. All notices, requests, demands and other communications to be given in
connection with this Escrow Agreement shall be in writing, shall be delivered by
hand, overnight delivery service or by facsimile transmission, shall be deemed
given when received and shall be addressed to the Escrow Agent at the address
listed below or to AMCE and the Durwood Parties at the respective addresses
listed on the signature pages or to such other addresses as they shall designate
from time to time in writing, forwarded in like manner; PROVIDED, HOWEVER, that
if any notice given by telecopy is received other than during the regular
business hours of the recipient, it shall be deemed to have been given on the
opening of business on the next business day of the recipient
If to the Escrow Agent:
[name]
[address]
Attention:
Telecopier No.:
A1-57
<PAGE>
Information copies of all notices given a Durwood party (other than Stanley
H. Durwood, the 1992 Trust or the 1989 Trust) shall be given to:
Robert C. Kopple, Esq.
Kopple & Klinger
2029 Century Park East
Suite 1040
Los Angeles, A 90067
Glenn Kurlander, Esq.
Schiff Hardin & Waite
Schiff Hardin & Waite
150 East 52nd Street
Suite 2900
New York, New York 10022
Information copies of all notices given to Stanley H. Durwood, the 1992
Trust or the 1989 Trust should be given to:
Raymond F. Beagle, Jr., Esq.
Lathrop & Gage L.C.
2345 Grand Boulevard, 24th Floor
Kansas City, Missouri 64108-2684
Information copies of all notices given to AMCE shall be given to:
Charles J. Egan, Jr., Esq.
Hallmark Cards, Incorporated
2501 McGee Trafficway
Kansas City, MO 64141-6126
The Honorable Paul E. Vardeman
Polsinelli, White, Vardeman & Shalton
Suite 1000, Plaza Steppes
700 West 47th Street
Kansas City, MO 64112-1802
10. If any provision of this Escrow Agreement or the application thereof to
any person or circumstance shall be determined to be invalid or unenforceable,
the remaining provisions of this Escrow Agreement or the application of such
provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
11. This Escrow Agreement may be executed in several counterparts or by
separate instruments, and all of such counterparts or instruments shall
constitute one agreement, binding on all the parties hereto.
12. All pronouns and any variations thereof shall be deemed to refer to the
masculine, feminine, neuter, singular or plural as the context may require.
A1-58
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Escrow Agreement as
of the day and year first above written.
<TABLE>
<S> <C>
[Escrow Agent]
By: ----------------------------------------
Name:
Title:
Suite 1700
Power & Light Building AMC ENTERTAINMENT INC.
106 West 14th Street
P.O. Box 419615 By: ----------------------------------------
Kansas City, Missouri 64141-6615
Suite 1700
Power & Light Building
106 West 14th Street --------------------------------------------
P.O. Box 419615 Stanley H. Durwood
Kansas City, Missouri 64141-6615
1323 Granite Creek Drive --------------------------------------------
Blue Springs, MO 64015 Carol D. Journagan
3001 West 68th Street --------------------------------------------
Shawnee Mission, KS 66208 Edward D. Durwood
P.O. Box 7208 --------------------------------------------
Rancho Santa Fe, CA 92067 Thomas A. Durwood
187 Chestnut Hill Road --------------------------------------------
Wilton, CT 06897 Elissa D. Grodin
655 N.W. Altishan Place --------------------------------------------
Beaverton, OR 97006 Brian H. Durwood
666 West End Avenue --------------------------------------------
New York, NY 10025 Peter J. Durwood
Suite 1700
Power & Light Building --------------------------------------------
106 West 14th Street Stanley H. Durwood, as trustee of the 1992
P.O. Box 419615 Trust
Kansas City, Missouri 64141-6615
Suite 1700
Power & Light Building --------------------------------------------
106 West 14th Street Stanley H. Durwood, as trustee of the 1989
P.O. Box 419615 Trust
Kansas City, Missouri 64141-6615
</TABLE>
A1-59
<PAGE>
EXHIBIT A
Names Shares
A1-60
<PAGE>
ANNEX 2
March 13, 1997
Special Committee to the Board of Directors
AMC Entertainment Inc.
106 West 14th Street
Kansas City, Missouri 64105
Gentlemen:
We understand that AMC Entertainment Inc. ("AMC") is considering entering
into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement")
substantially in the form of the Merger Agreement which was furnished to us on
March 11, 1997, whereby, among other things, (i) Durwood, Inc. ("DI") shall
merge with and into AMC, (ii) the separate existence of DI shall cease, (iii)
each share of DI Class A Stock which is owned by Harvard College shall be
converted into and become 32.142857 shares of AMC Common Stock, (iv) each share
of DI Class A Stock issued and outstanding other than those shares owned by
Harvard College shall be converted into and become 32.142857 shares of AMC Class
B Stock, (v) each share of DI Class B Stock which is owned by Stanley H.
Durwood, individually, as Trustee of the 1992 Durwood, Inc. Voting Trust dated
December 12, 1992 and as Trustee under the Stanley H. Durwood Trust Agreement
dated August 14, 1989 (collectively "SHD Trust") shall be converted into and
become 243.767528 shares of AMC Class B Stock and (vi) each share of DI Class B
Stock which is owned by any person other than SHD Trust shall be converted into
243.767341 shares of AMC Common Stock. Accordingly, shareholders of DI shall
effectively receive an aggregate 8,783,294 shares of AMC Common Stock and
5,015,657 shares of AMC Class B Stock (the "Merger Consideration"). The terms
and conditions of the transaction (the "Proposed Merger") are set forth in more
detail in the Merger Agreement and related documents.
We have been asked by the Special Committee to the Board of Directors of AMC
to render our opinion with respect to the fairness, from a financial point of
view, to AMC, of the consideration to be paid in the Proposed Merger.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed and analyzed, among other things, the following:
(i) the form of the Merger Agreement furnished to us on March 11, 1997;
(ii) the form of the Indemnification Agreement furnished to us on March 11,
1997;
(iii) the form of the Stock Agreement furnished to us on March 11, 1997;
(iv) the form of the Registration Agreement furnished to us on March 11,
1997;
(v) DI's consolidated financial statements for the years ended March 31,
1994, March 30, 1995 and March 28, 1996 and for the thirty-nine weeks
ended December 26, 1996;
(vi) AMC's Annual Reports to shareholders and Form 10-Ks for the fiscal
years ended March 31, 1994 through March 28, 1996 and the Quarterly
Report on Form 10-Q for the quarter ended December 26, 1996;
A2-1
<PAGE>
(vii) the trading history of AMC's Common Stock from January 2, 1992 through
March 7, 1997 and a comparison of that trading history with those of
other companies that we deemed relevant; and
(viii) a comparison of the historical and projected financial results and
financial condition of AMC with those of other companies and
businesses that we deemed relevant.
In addition, in arriving at our opinion, we have held discussions with DI's
and AMC's managements concerning their businesses, operations, assets, financial
conditions and prospects. We also undertook such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, although we have visited certain properties and
facilities of AMC, we have not made, obtained or assumed any responsibility for
any independent evaluation or appraisal of such properties and facilities or of
the assets and liabilities (contingent or otherwise) of AMC or DI. We have been
informed and have assumed that, at the time of the Proposed Merger, DI will have
no liabilities except for a contingent liability which, we are informed, is
remote. We are further informed that certain shareholders of DI will indemnify
AMC against the existence of any such liabilities for a period of two years
after the March 31 occurring immediately after the Effective Date, as defined in
the Indemnification Agreement. We have relied upon the accuracy and completeness
of the financial and other information supplied to or otherwise used by us in
arriving at our opinion and have not attempted independently to verify, or
undertaken any obligation to verify, such information. We have further relied
upon the assurances of the managements of DI and AMC that they were not aware of
any facts that would make such information inaccurate or misleading. We are
informed that Chadbourne & Park LLP, special tax counsel, will render an opinion
to the effect that the Proposed Merger will qualify as a reorganization in which
no taxable income, gain or loss will be recognized by AMC or DI pursuant to
Section 368(a)(1)(A) and related sections of the Internal Revenue Code of 1986,
as amended, and we have assumed that result. We have also been informed that the
Securities and Exchange Commission has not objected to the Company's proposed
accounting for the Proposed Merger at existing carrying amounts and we have
therefore assumed that for accounting purposes, the Proposed Merger will be
accounted for as a corporate reorganization.
We have also taken into account our assessment of general economic, market
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion is necessarily
based upon conditions as they exist and can be evaluated on the date hereof.
We do not express any view as to what the value of AMC's stock will be when
issued to DI stockholders pursuant to the Proposed Merger, or the price at which
AMC's stock will trade prior to or subsequent to the closing of the Proposed
Merger. This letter is for the benefit and use of the Special Committee to the
Board of Directors of AMC in its consideration of the Proposed Merger. This
letter does not constitute a recommendation of the Proposed Merger over any
other alternative transactions which may be available to AMC and does not
address the underlying business decision of the Board of Directors of AMC to
proceed with or effect the Proposed Merger. Furthermore, this letter does not
constitute a recommendation by our firm to any stockholder to vote in favor of
the Proposed Merger.
As you are aware, we have acted as financial advisor to the Special
Committee to the Board of Directors of AMC in connection with the Proposed
Merger and will receive a fee for our services which is contingent upon the
consummation of the Proposed Merger. We also, from time to time, may in the
future perform certain other financial advisory and securities underwriting
services for AMC for which we may receive a fee. In the ordinary course of our
business, we may trade in the equity securities of AMC for our own account and
for the accounts of our customers and, accordingly, may at any time hold a long
or short position in such securities. AMC has agreed to indemnify us for certain
liabilities that may arise out of the rendering of this opinion.
A2-2
<PAGE>
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Merger Consideration to be paid by AMC
in the Proposed Merger is fair, from a financial point of view, to AMC.
Very truly yours,
Furman Selz LLC
A2-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
AMC Entertainment Inc. is incorporated in Delaware. Under Section 145 of the
Delaware General Corporation Law, a corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they were
or are such directors, officers, employees or agents, against expenses incurred
in any such action, suit, or proceeding. AMCE's certificate of incorporation
requires indemnification of directors and officers to the full extent permitted
by the Delaware General Corporation Law and provides that, in any action by a
claimant, AMCE shall bear the burden of proof that the claimant is not entitled
to indemnification.
Section 102(b)(7) of the Delaware General Corporation Law provides that a
certificate of incorporation may contain a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. The
Certificate of Incorporation of AMCE contains the provisions permitted by
Section 102(b)(7) of the Delaware General Corporation Law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons and the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person thereof in the successful defense of any action,
suit or proceeding in connection with the securities being registered pursuant
to this Registration Statement, the Company will, unless in the opinion of
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
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<S> <C>
** 2.1. Agreement and Plan of Merger dated as of March 31, 1997 between AMC Entertainment Inc. and
Durwood, Inc. (together with Exhibit A, "Pre-Merger Action Plan")
** 2.2. Form of Stock Agreement to be entered into among AMC Entertainment Inc. and Stanley H. Durwood,
Carol D. Journagan, Edward D. Durwood, Thomas A. Durwood, Elissa D. Grodin, Brian H. Durwood and
Peter J. Durwood ("Durwood Family Stockholders")
** 2.3. Form of Registration Agreement to be entered into between AMC Entertainment Inc. and the Durwood
Family Stockholders
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------------
** 2.4.(a) Indemnification Agreement dated as of March 31, 1997 among AMC Entertainment Inc., the Durwood
Family Stockholders and Delta Properties, Inc., together with Exhibit B thereto (Escrow
Agreement)
<S> <C>
2.4.(b) Durwood Family Settlement Agreement (Incorporated by reference from Exhibit 99.1 to Schedule 13-D
of Durwood, Inc. and Stanley H. Durwood dated May 3, 1996)
** 2.4.(c) First Amendment to Durwood Family Settlement Agreement
2.5. Articles of Merger dated March 31, 1994 between American Multi-Cinema, Inc. and its wholly owned
subsidiaries, Cinema Enterprises, Inc. and Cinema Enterprises II, Inc. and related Plan and
Agreement of Liquidation and Merger (Incorporated by reference from Exhibit 2 to AMCE's Form
10-K (File No. 1-8747) for the fiscal year ended March 31, 1994)
2.6. Stock Purchase, Release and Settlement Agreement dated January 10, 1997 between American
Multi-Cinema, Inc. and H. Donald Busch respecting AMC Philadelphia, Inc. (Incorporated by
reference from Exhibit 2.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December
26, 1996)
** 2.7.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between AMC Realty, Inc. and its
subsidiary, AMC Canton Realty, Inc.
** 2.7.(b) Certificate of Ownership and Merger dated March 31, 1997 between AMC Realty, Inc. and its
subsidiary, AMC Canton Realty, Inc.
** 2.8.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between AMC Philadelphia, Inc.
and its subsidiary, Budco Theatres, Inc.
** 2.8.(b) Certificate of Ownership and Merger dated March 31, 1997 between AMC Philadelphia, Inc. and its
subsidiary, Budco Theatres, Inc. (Delaware)
** 2.8.(c) Articles of Merger dated March 31, 1997 between AMC Philadelphia, Inc. and Budco Theatres, Inc.
(Pennsylvania)
** 2.9.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between American Multi-Cinema,
Inc. and its subsidiary, AMC Philadelphia, Inc.
** 2.9.(b) Certificate of Ownership and Merger merging AMC Philadelphia, Inc., a Delaware corporation, into
American Multi-Cinema, Inc., a Missouri corporation (Delaware)
** 2.9.(c) Articles of Merger between AMC Philadelphia, Inc., and American Multi-Cinema, Inc. (Missouri)
3.1. Amended and Restated Certificate of Incorporation of AMC Entertainment Inc. (Incorporated by
reference from Exhibit 3.1 to Amendment No. 2 to AMCE's Registration Statement on Form S-2 (File
No. 33-51693) filed February 18, 1994)
3.2. Certificate of Designations relating to $1.75 Cumulative Convertible Preferred Stock (Incorporated
by reference from AMCE's Form 8-K (File No. 1-8747) dated April 7, 1994)
3.3. Bylaws of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.3 to AMCE's Form 10-Q
(File No. 0-12429) for the quarter ended December 26, 1996)
4.1.(a) Indenture among AMC Entertainment Inc., as issuer, American Multi-Cinema, Inc., AMC Realty, Inc.,
Conservco, Inc., AMC Canton Realty, Inc., AMC Philadelphia, Inc., Budco Theatres, Inc. and
Concord Cinema, Inc. (collectively "Guarantors") and United States Trust Company of New York, as
Trustee, respecting AMC Entertainment Inc.'s 11 7/8% Senior Notes due 2000 (Incorporated by
reference from Exhibit 4.3 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2,
1992)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------------
4.1.(b) First Supplemental Indenture dated as of March 31, 1993, pursuant to which AMC Film Marketing,
Inc. became a Guarantor (Incorporated by reference from Exhibit 4.1(b) to AMCE's Form 10-K (File
No. 1-8747) for the fiscal year ended April 1, 1993)
<S> <C>
4.1.(c) Fourth Supplemental Indenture dated as of March 31,1994, pursuant to which American Multi-Cinema,
Inc. assumed the obligations of Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and
Exhibition Enterprises Partnership under the Senior Subordinated Note Indenture and related
guarantees of such entities (Incorporated by reference from Exhibit 4.2(c) to AMCE's Form 10-K
(File No. 1-8747) for the fiscal year ended March 31, 1994)
4.1.(d) Fifth Supplemental Indenture dated December 28,1995, respecting AMC Entertainment Inc.'s 11 7/8%
Senior Notes due 2000 (Incorporated by reference from Exhibit 4.1(d) to AMCE's Registration
Statement on Form S-4 (File No. 333-29155) filed June 13, 1997)
4.1.(e) Sixth Supplemental Indenture dated March 28, 1996, respecting AMC Entertainment Inc.'s 11 7/8%
Senior Notes due 2000 (Incorporated by reference from Exhibit 4.2(d) to AMCE's Form 10-K (File
No. 0-12429) for the fiscal year ended March 28, 1996)
4.2.(a) Indenture among AMC Entertainment Inc., as issuer, American Multi-Cinema, Inc., AMC Realty, Inc.,
Conservco, Inc., AMC Canton Realty, Inc., AMC Philadelphia, Inc., Budco Theatres, Inc. and
Concord Cinema, Inc. (collectively "Guarantors") and The Bank of New York, as Trustee,
respecting AMC Entertainment Inc.'s 12 5/8% Senior Subordinated Notes due 2002 (Incorporated by
reference from Exhibit 4.4 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2,
1992)
4.2.(b) First Supplemental Indenture dated as of March 31 , 1993, pursuant to which AMC Film Marketing,
Inc. became a Guarantor (Incorporated by reference from Exhibit 4.2(b) to AMCE's Form 10-K (File
No. 1-8747) for the fiscal year ended April 1, 1993)
4.2.(c) Fourth Supplemental Indenture dated as of March 31,1994, pursuant to which American Multi-Cinema,
Inc. assumed the obligations of Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and
Exhibition Enterprises Partnership under the Senior Subordinated Note Indenture and related
guarantees of such entities (Incorporated by reference from Exhibit 4.2(c) to AMCE's Form 10-K
(File No. 1-8747) for the fiscal year ended March 31, 1994)
4.2.(d) Fifth Supplemental Indenture dated December 28,1995, respecting AMC Entertainment Inc.'s 12 5/8%
Senior Subordinated Notes due 2002 (Incorporated by reference from Exhibit 4.2(d) to AMCE's
Registration Statement on Form S-4 (File No. 333-29155 filed June 13, 1997)
4.2.(e) Sixth Supplemental Indenture dated March 28, 1996, respecting AMC Entertainment Inc.'s 12 5/8%
Senior Subordinated Notes due 2002 (Incorporated by reference from Exhibit 4.2.(e) to AMCE's
Form 10-K (File No. 0-12429) for the fiscal year ended March 28, 1996)
** 4.3. Amended and Restated Credit Agreement dated as of April 10, 1997, among AMC Entertainment Inc., as
the Borrower, The Bank of Nova Scotia, as Administrative Agent and Bank of America National
Trust and Savings Association, as Documentation Agent and Various Financial Institutions, as
Lenders, together with the following exhibits thereto; significant subsidiary guarantee, form of
notes, form of pledge agreement and form of subsidiary pledge agreement. (Incorporated by
reference from Exhibit 4.3 to AMCE's Registration Statement on Form S-4 (File No. 333-25755)
filed April 24, 1997)
4.4.(a) Indenture dated March 19, 1997, respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated
Notes due 2009 (Incorporated by reference from Exhibit 4.1 to AMCE's Form 8-K (File No. 1-8747)
dated March 19, 1997)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------------
4.4(b) Form of First Supplemental Indenture, respecting AMC Entertainment Inc.'s 9 1/2% Senior
Subordinated Notes due 2009 (Incorporated by reference from Exhibit 4.4(b) to AMCE's
Registration Statement on Form S-4 (File No. 333-29155 filed June 13, 1997)
<S> <C>
4.5. Registration Rights Agreement respecting 9 1/2% Senior Subordinated Notes due 2009 (Incorporated
by reference from Exhibit 4.2 to AMCE's Form 8-K (File No. 1-8747) dated March 19, 1997)
4.6. In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments respecting long
term debt of the Registrant have been omitted but will be furnished to the Commission upon
request
* 5. Opinion of Richards, Layton & Finger, P.A., as to legality of shares issued in the Merger
* 8. Opinion of Chadbourne & Parke L.L.P. as to tax matters
10.1. AMC Entertainment Inc. 1983 Stock Option Plan (Incorporated by reference from Exhibit 10.1 to
AMCE's Form S-1 (File No. 2-84675) filed June 22, 1983)
10.2. Federal Income Tax Allocation Agreement dated as of July 1, 1983, between Durwood, Inc. and AMC
Entertainment Inc. (Incorporated by reference from Exhibit 10.2 to AMCE's Form S-1 (File No.
2-84675) filed June 22, 1983)
10.3. AMC Entertainment Inc. 1984 Employee Stock Purchase Plan (Incorporated by reference from Exhibit
28.1 to AMCE's Form S-8 (File No. 2-97523) filed July 3, 1984)
10.4. AMC Entertainment Inc. 1984 Employee Stock Option Plan (Incorporated by reference from Exhibit
28.1 to AMCE's S-8 and S-3 (File No. 2-97522) filed July 3, 1984)
10.5.(a) AMC Entertainment Inc. 1994 Stock Option and Incentive Plan, as amended (Incorporated by reference
from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26,
1996)
10.5.(b) Form of Performance Stock Award Agreement (Incorporated by reference from Exhibit 10.5(d) to
AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 30, 1995)
10.5.(c) Form of Non-Qualified (NON-ISO) Stock Option Agreement (Incorporated by reference from Exhibit
10.2 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26, 1996)
10.6. American Multi-Cinema, Inc. Savings Plan, a defined contribution 401(k) plan, restated January 1,
1989, as amended (Incorporated by reference from Exhibit 10.6 to AMCE's Form S-1 (File No.
33-48586) filed June 12, 1992, as amended)
10.7.(a) Defined Benefit Retirement Income Plan for Certain Employees of American Multi-Cinema, Inc. dated
January 1, 1989, as amended (Incorporated by reference from Exhibit 10.7 to AMCE's Form S-1
(File No. 33-48586) filed June 12, 1992, as amended)
10.7.(b) AMC Supplemental Executive Retirement Plan dated January 1, 1994 (Incorporated by reference from
Exhibit 10.7(b) to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 30, 1995)
10.8. Employment Agreement between American Multi-Cinema, Inc. and Philip M. Singleton (Incorporated by
reference from Exhibit 10(a) to AMCE's Form 10-Q (File No. 1-8747) for the quarter ended
September 29, 1994)
10.9. Employment Agreement between American Multi-Cinema, Inc. and Peter C. Brown (Incorporated by
reference from Exhibit 10(b) to AMCE's Form 10-Q (File No.1-8747) for the quarter ended
September 29, 1994)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------------
10.10. Disability Compensation Provisions respecting Stanley H. Durwood (Incorporated by reference from
Exhibit 10.12 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended)
<S> <C>
10.11. Executive Medical Expense Reimbursement and Supplemental Accidental Death or Dismemberment
Insurance Plan, as restated effective as of February 1, 1991 (Incorporated by reference from
Exhibit 10.13 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended)
10.12. Division Operations Incentive Program (incorporated by reference from Exhibit 10.15 to AMCE's Form
S-1 (File No. 33-48586) filed June 12, 1992, as amended)
10.13. Agreement and General Release between Edward D. Durwood and American Multi-Cinema, Inc.
(Incorporated by reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the
quarter ended September 28, 1995)
10.14. Agreement and General Release between Donald P. Harris and American Multi-Cinema, Inc.
(Incorporated by reference from Exhibit 10.2 to AMCE's Form 10-Q (File No. 0-12429) for the
quarter ended September 28, 1995)
10.15. Partnership Interest Purchase Agreement dated May 28, 1993, among Exhibition Enterprises
Partnership, Cinema Enterprises, Inc., Cinema Enterprises II, Inc., American Multi-Cinema, Inc.,
TPI Entertainment, Inc. and TPI Enterprises, Inc. (Incorporated by reference from Exhibit 10.29
to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993)
10.16. Mutual Release and Indemnification Agreement dated May 28, 1993, among Exhibition Enterprises
Partnership, Cinema Enterprises, Inc., American Multi-Cinema, Inc., TPI Entertainment, Inc. and
TPI Enterprises, Inc. (Incorporated by reference from Exhibit 10.30 to AMCE's Form 10-K (File
No. 1-8747) for the fiscal year ended April 1, 1993)
10.17. Assignment and Assumption Agreement between Cinema Enterprises II, Inc. and TPI Entertainment,
Inc. (Incorporated by reference from Exhibit 10.31 to AMCE's Form 10-K (File No. 1-8747) for the
fiscal year ended April 1, 1993)
10.18. Confidentiality Agreement dated May 28,1993, among TPI Entertainment, Inc., TPI Enterprises, Inc.,
Exhibition Enterprises Partnership, Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and
American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K
(File No. 1-8747) for the fiscal year ended April 1, 1993)
10.19. Termination Agreement dated May 28, 1993, among TPI Entertainment, Inc., TPI Enterprises, Inc.
Exhibition Enterprises Partnership, American Multi-Cinema, Inc., Cinema Enterprises, Inc., AMC
Entertainment Inc., Durwood, Inc., Stanley H. Durwood and Edward D. Durwood (Incorporated by
reference from Exhibit 10.33 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended
April 1, 1993)
10.20. Promissory Note dated June 16, 1993, made by Thomas L. Velde and Katherine G. Terwilliger, husband
and wife, payable to American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.34
to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993)
10.21. Second Mortgage dated June 16,1993, among Thomas L. Velde, Katherine G. Terwilliger and American
Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.35 to AMCE's Form 10-K (File No.
1-8747) for the fiscal year ended April 1, 1993)
10.22. Summary of American Multi-Cinema, Inc. Executive Incentive Program (Incorporated by reference from
Exhibit 10.36 to AMCE's Registration Statement on Form S-2 (File No. 33-51693) filed December
23, 1993)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------------------
10.23. AMC Non-Qualified Deferred Compensation Plans (Incorporated by reference from Exhibit 10.37 to
Amendment No. 2 to AMCE's Registration Statement on Form S-2 (File No. 33-51693) filed February
18, 1994)
<S> <C>
10.24. Employment Agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and Stanley H.
Durwood (Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K (File No. 0-12429) for
the fiscal year ended March 28, 1996)
10.25. Real Estate Contract dated November 1, 1995 among Richard M. Fay, Mary B. Fay and American
Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.33 to AMCE's Form 10-K (File No.
0-12429) for the fiscal year ended March 28, 1996)
**10.26. American Multi-Cinema, Inc. Retirement Enhancement Plan
10.27. Employment Agreement between American Multi-Cinema, Inc. and Richard M. Fay (Incorporated by
reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended June
27, 1996)
**10.28. American Multi-Cinema, Inc. Executive Savings Plan
*11. Computation of Per Share Earnings
13. Incorporated portions of the Annual Stockholder's Report for the fiscal year ended March 28, 1996
(Incorporated by reference from Exhibit 13 to AMCE's Form 10-K (File No. 0-12429) for the fiscal
year ended March 28, 1996)
16. Letter regarding change in certifying accountant (Incorporated by reference from Exhibit 19.6 to
AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2, 1992)
**21. Subsidiaries of AMC Entertainment Inc.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Coopers & Lybrand L.L.P regarding Durwood, Inc.
*23.3 Consent of Richards, Layton & Finger, P.A. to the use of their opinion filed as Exhibit 5
(Incorporated in Exhibit 5)
*23.4 Consent of Chadbourne & Parke L.L.P. to the use of their opinion filed as Exhibit 8 (Incorporated
in Exhibit 8)
*23.5 Consent of Furman Selz LLC
**24. Power of Attorney (included after signature page)
*27. Financial Data Schedule
*99. Form of Proxy Card to be used at Special Meeting
</TABLE>
- --------------
* Filed herewith
** Previously filed with this registration statement
*** To be filed by amendment
(c) Item 4(b) Information.
The report of Furman Selz LLC is furnished as part of the Proxy--Information
Statement/Prospectus.
II-6
<PAGE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy--Information
Statement/Prospectus pursuant to Item 4, 10(b), 11, or 13 of Form S-4, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
(5) Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Peter C. Brown and Richard L. Obert, and
each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments or post-effective amendments to this Registration Statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
each such attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AMC
Entertainment Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Kansas
City and the State of Missouri, on the 17th day of June, 1997.
AMC ENTERTAINMENT INC.
By: /s/ RICHARD L. OBERT
------------------------------------------
SENIOR VICE PRESIDENT--CHIEF ACCOUNTING
AND INFORMATION OFFICER
II-8
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
TITLE DATE
---------------------------- -------------------
* Chairman of the Board, Chief
- ---------------------------- Executive Officer and June 17, 1997
Stanley H. Durwood Director
*
- ---------------------------- Director June 17, 1997
Paul E. Vardeman
*
- ---------------------------- Director June 17, 1997
Charles J. Egan, Jr.
*
- ---------------------------- Director June 17, 1997
William T. Grant, II
*
- ---------------------------- Director June 17, 1997
John P. Mascotte
*
- ---------------------------- President, Chief Financial June 17, 1997
Peter C. Brown Officer and Director
* Executive Vice President,
- ---------------------------- Chief Operating Officer June 17, 1997
Philip M. Singleton and Director
* Senior Vice President--Chief
- ---------------------------- Accounting and Information June 17, 1997
Richard L. Obert Officer
* By:/s/ RICHARD L. OBERT
-----------------------------------------
Richard L. Obert
Attorney-In-Fact
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** 2.1. Agreement and Plan of Merger dated as of March 31, 1997 between AMC Entertainment Inc. and
Durwood, Inc. (together with Exhibit A, "Pre-Merger Action Plan")
** 2.2. Form of Stock Agreement to be entered into among AMC Entertainment Inc. and Stanley H. Durwood,
Carol D. Journagan, Edward D. Durwood, Thomas A. Durwood, Elissa D. Grodin, Brian H. Durwood and
Peter J. Durwood ("Durwood Family Stockholders")
** 2.3. Form of Registration Agreement to be entered into between AMC Entertainment Inc. and the Durwood
Family Stockholders
** 2.4.(a) Indemnification Agreement dated as of March 31, 1997 among AMC Entertainment, Inc., the Durwood
Family Stockholders and Delta Properties, Inc., together with Exhibit B thereto (Escrow
Agreement)
2.4.(b) Durwood Family Settlement Agreement (Incorporated by reference from Exhibit 99.1 to Schedule 13-D
of Durwood, Inc. and Stanley H. Durwood dated May 3, 1996)
** 2.4.(c) First Amendment to Durwood Family Settlement Agreement
2.5. Articles of Merger dated March 31, 1994 between American Multi-Cinema, Inc. and its wholly owned
subsidiaries, Cinema Enterprises, Inc. and Cinema Enterprises II, Inc. and related Plan and
Agreement of Liquidation and Merger (Incorporated by reference from Exhibit 2 to AMCE's Form
10-K (File No. 1-8747) for the fiscal year ended March 31, 1994)
2.6. Stock Purchase, Release and Settlement Agreement dated January 10, 1997 between American
Multi-Cinema, Inc. and H. Donald Busch respecting AMC Philadelphia, Inc. (Incorporated by
reference from Exhibit 2.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December
26, 1996)
** 2.7.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between AMC Realty, Inc. and its
subsidiary, AMC Canton Realty, Inc.
** 2.7.(b) Certificate of Ownership and Merger dated March 31, 1997 between AMC Realty, Inc. and its
subsidiary, AMC Canton Realty, Inc.
** 2.8.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between AMC Philadelphia, Inc.
and its subsidiary, Budco Theatres, Inc.
** 2.8.(b) Certificate of Ownership and Merger dated March 31, 1997 between AMC Philadelphia, Inc. and its
subsidiary, Budco Theatres, Inc. (Delaware)
** 2.8.(c) Articles of Merger dated March 31, 1997 between AMC Philadelphia, Inc. and Budco Theatres, Inc.
(Pennsylvania)
** 2.9.(a) Plan and Agreement of Liquidation and Merger dated March 31, 1997 between American Multi-Cinema,
Inc. and its subsidiary, AMC Philadelphia, Inc.
** 2.9.(b) Certificate of Ownership and Merger merging AMC Philadelphia, Inc., a Delaware corporation, into
American Multi-Cinema, Inc., a Missouri corporation (Delaware)
** 2.9.(c) Articles of Merger between AMC Philadelphia, Inc., and American Multi-Cinema, Inc. (Missouri)
3.1. Amended and Restated Certificate of Incorporation of AMC Entertainment Inc. (Incorporated by
reference from Exhibit 3.1 to Amendment No. 2 to AMCE's Registration Statement on Form S-2 (File
No. 33-51693) filed February 18, 1994)
3.2. Certificate of Designations relating to $1.75 Cumulative Convertible Preferred Stock (Incorporated
by reference from AMCE's Form 8-K (File No. 1-8747) dated April 7, 1994)
3.3. Bylaws of AMC Entertainment Inc. (Incorporated by reference from Exhibit 3.3 to AMCE's Form 10-Q
(File No. 0-12429) for the quarter ended December 26, 1996)
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4.1.(a) Indenture among AMC Entertainment Inc., as issuer, American Multi-Cinema Inc., AMC Realty, Inc.,
Conservco, Inc., AMC Canton Realty, Inc., AMC Philadelphia, Inc., Budco Theatres, Inc. and
Concord Cinema, Inc. (collectively "Guarantors") and United States Trust Company of New York, as
Trustee, respecting AMC Entertainment Inc.'s 11 7/8% Senior Notes due 2000 (Incorporated by
reference from Exhibit 4.3 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2,
1992)
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4.1.(b) First Supplemental Indenture dated as of March 31, 1993, pursuant to which AMC Film Marketing,
Inc. became a Guarantor (Incorporated by reference from Exhibit 4.1(b) to AMCE's Form 10-K (File
No. 1-8747) for the fiscal year ended April 1, 1993)
4.1.(c) Fourth Supplemental Indenture dated as of March 31,1994, pursuant to which American Multi-Cinema,
Inc. assumed the obligations of Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and
Exhibition Enterprises Partnership under the Senior Subordinated Note Indenture and related
guarantees of such entities (Incorporated by reference from Exhibit 4.2(c) to AMCE's Form 10-K
(File No. 1-8747) for the fiscal year ended March 31, 1994)
4.1.(d) Fifth Supplemental Indenture dated December 28,1995, respecting AMC Entertainment Inc.'s 11 7/8%
Senior Notes due 2000 (Incorporated by reference from Exhibit 4.1(d) to AMCE's Registration
Statement on Form S-4 (File No. 333-29155) filed June 13, 1997)
4.1.(e) Sixth Supplemental Indenture dated March 28, 1996, respecting AMC Entertainment Inc.'s 11 7/8%
Senior Notes due 2000 (Incorporated by reference from Exhibit 4.2(d) to AMCE's Form 10-K (File
No. 0-12429) for the fiscal year ended March 28, 1996)
4.2.(a) Indenture among AMC Entertainment Inc., as issuer, American Multi-Cinema, Inc., AMC Realty, Inc.,
Conservco, Inc., AMC Canton Realty, Inc., AMC Philadelphia, Inc., Budco Theatres, Inc. and
Concord Cinema, Inc. (collectively "Guarantors") and The Bank of New York, as Trustee,
respecting AMC Entertainment Inc.'s 12 5/8% Senior Subordinated Notes due 2002 (Incorporated by
reference from Exhibit 4.4 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2,
1992)
4.2.(b) First Supplemental Indenture dated as of March 31 , 1993, pursuant to which AMC Film Marketing,
Inc. became a Guarantor (Incorporated by reference from Exhibit 4.2(b) to AMCE's Form 10-K (File
No. 1-8747) for the fiscal year ended April 1, 1993)
4.2.(c) Fourth Supplemental Indenture dated as of March 31,1994, pursuant to which American Multi-Cinema,
Inc. assumed the obligations of Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and
Exhibition Enterprises Partnership under the Senior Subordinated Note Indenture and related
guarantees of such entities (Incorporated by reference from Exhibit 4.2(c) to AMCE's Form 10-K
(File No. 1-8747) for the fiscal year ended March 31, 1994)
4.2.(d) Fifth Supplemental Indenture dated December 28,1995, respecting AMC Entertainment Inc.'s 12 5/8%
Senior Subordinated Notes due 2002 (Incorporated by reference from Exhibit 4.2(d) to AMCE's
Registration Statement on Form S-4 (File No. 333-29155) filed June 13, 1997)
4.2.(e) Sixth Supplemental Indenture dated March 28, 1996, respecting AMC Entertainment Inc.'s 12 5/8%
Senior Subordinated Notes due 2002 (Incorporated by reference from Exhibit 4.2.(e) to AMCE's
Form 10-K (File No. 0-12429) for the fiscal year ended March 28, 1996)
** 4.3. Amended and Restated Credit Agreement dated as of April 10, 1997, among AMC Entertainment Inc., as
the Borrower, The Bank of Nova Scotia, as Administrative Agent and Bank of America National
Trust and Savings Association, as Documentation Agent and Various Financial Institutions, as
Lenders, together with the following exhibits thereto; significant subsidiary guarantee, form of
notes, form of pledge agreement and form of subsidiary pledge agreement. (Incorporated by
reference from Exhibit 4.3 to AMCE's Registration Statement on Form S-4 (File No. 333-25755)
filed April 24, 1997)
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4.4.(a) Indenture dated March 19, 1997, respecting AMC Entertainment Inc.'s 9 1/2% Senior Subordinated
Notes due 2009 (Incorporated by reference from Exhibit 4.1 to AMCE's Form 8-K (File No. 1-8747)
dated March 19, 1997)
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4.4(b) Form of First Supplemental Indenture, respecting AMC Entertainment Inc.'s 9 1/2% Senior
Subordinated Notes due 2009 (Incorporated by reference from Exhibit 4.4(b) to AMCE's
Registration Statement on Form S-4 (File No. 333-29155) filed June 13, 1997)
4.5. Registration Rights Agreement respecting 9 1/2% Senior Subordinated Notes due 2009 (Incorporated
by reference from Exhibit 4.2 to AMCE's Form 8-K (File No. 1-8747) dated March 19, 1997)
4.6. In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, certain instruments respecting long
term debt of the Registrant have been omitted but will be furnished to the Commission upon
request
* 5. Opinion of Richards, Layton & Finger, P.A., as to legality of shares issued in the Merger
* 8. Opinion of Chadbourne & Parke L.L.P. as to tax matters
10.1. AMC Entertainment Inc. 1983 Stock Option Plan (Incorporated by reference from Exhibit 10.1 to
AMCE's Form S-1 (File No. 2-84675) filed June 22, 1983)
10.2. Federal Income Tax Allocation Agreement dated as of July 1, 1983, between Durwood, Inc. and AMC
Entertainment Inc. (Incorporated by reference from Exhibit 10.2 to AMCE's Form S-1 (File No.
2-84675) filed June 22, 1983)
10.3. AMC Entertainment Inc. 1984 Employee Stock Purchase Plan (Incorporated by reference from Exhibit
28.1 to AMCE's Form S-8 (File No. 2-97523) filed July 3, 1984)
10.4. AMC Entertainment Inc. 1984 Employee Stock Option Plan (Incorporated by reference from Exhibit
28.1 to AMCE's S-8 and S-3 (File No. 2-97522) filed July 3, 1984)
10.5.(a) AMC Entertainment Inc. 1994 Stock Option and Incentive Plan, as amended (Incorporated by reference
from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26,
1996)
10.5.(b) Form of Performance Stock Award Agreement (Incorporated by reference from Exhibit 10.5(d) to
AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 30, 1995)
10.5.(c) Form of Non-Qualified (NON-ISO) Stock Option Agreement (Incorporated by reference from Exhibit
10.2 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended December 26, 1996)
10.6. American Multi-Cinema, Inc. Savings Plan, a defined contribution 401(k) plan, restated January 1,
1989, as amended (Incorporated by reference from Exhibit 10.6 to AMCE's Form S-1 (File No.
33-48586) filed June 12, 1992, as amended)
10.7.(a) Defined Benefit Retirement Income Plan for Certain Employees of American Multi-Cinema, Inc. dated
January 1, 1989, as amended (Incorporated by reference from Exhibit 10.7 to AMCE's Form S-1
(File No. 33-48586) filed June 12, 1992, as amended)
10.7.(b) AMC Supplemental Executive Retirement Plan dated January 1, 1994 (Incorporated by reference from
Exhibit 10.7(b) to AMCE's Form 10-K (File No. 0-12429) for the fiscal year ended March 30, 1995)
10.8. Employment Agreement between American Multi-Cinema, Inc. and Philip M. Singleton (Incorporated by
reference from Exhibit 10(a) to AMCE's Form 10-Q (File No. 1-8747) for the quarter ended
September 29, 1994)
10.9. Employment Agreement between American Multi-Cinema, Inc. and Peter C. Brown (Incorporated by
reference from Exhibit 10(b) to AMCE's Form 10-Q (File No.1-8747) for the quarter ended
September 29, 1994)
10.10. Disability Compensation Provisions respecting Stanley H. Durwood (Incorporated by reference from
Exhibit 10.12 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended)
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10.11. Executive Medical Expense Reimbursement and Supplemental Accidental Death or Dismemberment
Insurance Plan, as restated effective as of February 1, 1991 (Incorporated by reference from
Exhibit 10.13 to AMCE's Form S-1 (File No. 33-48586) filed June 12, 1992, as amended)
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10.12. Division Operations Incentive Program (incorporated by reference from Exhibit 10.15 to AMCE's Form
S-1 (File No. 33-48586) filed June 12, 1992, as amended)
10.13. Agreement and General Release between Edward D. Durwood and American Multi-Cinema, Inc.
(Incorporated by reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the
quarter ended September 28, 1995)
10.14. Agreement and General Release between Donald P. Harris and American Multi-Cinema, Inc.
(Incorporated by reference from Exhibit 10.2 to AMCE's Form 10-Q (File No. 0-12429) for the
quarter ended September 28, 1995)
10.15. Partnership Interest Purchase Agreement dated May 28, 1993, among Exhibition Enterprises
Partnership, Cinema Enterprises, Inc., Cinema Enterprises II, Inc., American Multi-Cinema, Inc.,
TPI Entertainment, Inc. and TPI Enterprises, Inc. (Incorporated by reference from Exhibit 10.29
to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993)
10.16. Mutual Release and Indemnification Agreement dated May 28, 1993, among Exhibition Enterprises
Partnership, Cinema Enterprises, Inc., American Multi-Cinema, Inc., TPI Entertainment, Inc. and
TPI Enterprises, Inc. (Incorporated by reference from Exhibit 10.30 to AMCE's Form 10-K (File
No. 1-8747) for the fiscal year ended April 1, 1993)
10.17. Assignment and Assumption Agreement between Cinema Enterprises II, Inc. and TPI Entertainment,
Inc. (Incorporated by reference from Exhibit 10.31 to AMCE's Form 10-K (File No. 1-8747) for the
fiscal year ended April 1, 1993)
10.18. Confidentiality Agreement dated May 28,1993, among TPI Entertainment, Inc., TPI Enterprises, Inc.,
Exhibition Enterprises Partnership, Cinema Enterprises, Inc., Cinema Enterprises II, Inc. and
American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K
(File No. 1-8747) for the fiscal year ended April 1, 1993)
10.19. Termination Agreement dated May 28, 1993, among TPI Entertainment, Inc., TPI Enterprises, Inc.
Exhibition Enterprises Partnership, American Multi-Cinema, Inc., Cinema Enterprises, Inc., AMC
Entertainment Inc., Durwood, Inc., Stanley H. Durwood and Edward D. Durwood (Incorporated by
reference from Exhibit 10.33 to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended
April 1, 1993)
10.20. Promissory Note dated June 16, 1993, made by Thomas L. Velde and Katherine G. Terwilliger, husband
and wife, payable to American Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.34
to AMCE's Form 10-K (File No. 1-8747) for the fiscal year ended April 1, 1993)
10.21. Second Mortgage dated June 16,1993, among Thomas L. Velde, Katherine G. Terwilliger and American
Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.35 to AMCE's Form 10-K (File No.
1-8747) for the fiscal year ended April 1, 1993)
10.22. Summary of American Multi-Cinema, Inc. Executive Incentive Program (Incorporated by reference from
Exhibit 10.36 to AMCE's Registration Statement on Form S-2 (File No. 33-51693) filed December
23, 1993)
10.23. AMC Non-Qualified Deferred Compensation Plans (Incorporated by reference from Exhibit 10.37 to
Amendment No. 2 to AMCE's Registration Statement on Form S-2 (File No. 33-51693) filed February
18, 1994)
10.24. Employment Agreement between AMC Entertainment Inc., American Multi-Cinema, Inc. and Stanley H.
Durwood (Incorporated by reference from Exhibit 10.32 to AMCE's Form 10-K (File No. 0-12429) for
the fiscal year ended March 28, 1996)
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10.25. Real Estate Contract dated November 1, 1995 among Richard M. Fay, Mary B. Fay and American
Multi-Cinema, Inc. (Incorporated by reference from Exhibit 10.33 to AMCE's Form 10-K (File No.
0-12429) for the fiscal year ended March 28, 1996)
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**10.26. American Multi-Cinema, Inc. Retirement Enhancement Plan
10.27. Employment Agreement between American Multi-Cinema, Inc. and Richard M. Fay (Incorporated by
reference from Exhibit 10.1 to AMCE's Form 10-Q (File No. 0-12429) for the quarter ended June
27, 1996)
**10.28. American Multi-Cinema, Inc. Executive Savings Plan
*11. Computation of Per Share Earnings
13. Incorporated portions of the Annual Stockholder's Report for the fiscal year ended March 28, 1996
(Incorporated by reference from Exhibit 13 to AMCE's Form 10-K (File No. 0-12429) for the fiscal
year ended March 28, 1996)
16. Letter regarding change in certifying accountant (Incorporated by reference from Exhibit 19.6 to
AMCE's Form 10-Q (File No. 0-12429) for the quarter ended July 2, 1992)
**21. Subsidiaries of AMC Entertainment Inc.
*23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Coopers & Lybrand L.L.P regarding Durwood, Inc.
*23.3 Consent of Richards, Layton & Finger, P.A. to the use of their opinion filed as Exhibit 5
(Incorporated in Exhibit 5)
*23.4 Consent of Chadbourne & Parke L.L.P. to the use of their opinion filed as Exhibit 8 (Incorporated
in Exhibit 8)
23.5 Consent of Furman Selz LLC
**24. Power of Attorney (included after signature page)
*27. Financial Data Schedule
*99. Form of Proxy Card to be used at Special Meeting
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* Filed herewith
** Previously filed with this registration statement
*** To be filed by amendment
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[Letterhead of Richards, Layton & Finger]
June 16, 1997
AMC Entertainment Inc.
106 West 14th Street
Kansas City, Missouri 64105
Ladies and Gentlemen:
We have acted as special Delaware counsel to AMC Entertainment Inc., a
Delaware corporation (the "Company"), in connection with the proposed issuance
of up to 5,015,657 shares of the Company's Class B Stock, par value 66 2/3-cents
per share (collectively, the "Shares"), pursuant to the Agreement and Plan of
Merger and Reorganization, dated as of March 31, 1997, by and between the
Company and Durwood, Inc. (the "Merger Agreement").
For purpose of rendering our opinion as stated herein, we have been
furnished and have reviewed copies of the following documents:
(i) the Amended and Restated Certificate of Incorporation of the
Company as filed with the Secretary of State of the State of Delaware on
April 17, 1994;
(ii) the Bylaws of the Company, as amended through October 18, 1996;
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(iii) the Merger Agreement; and
(iv) the Registration Statement on Form S-4 of the Company
(no. 333-25755) with respect to the Shares (the "Registration Statement").
With respect to the foregoing documents, we have assumed: (i) the
authenticity of all documents submitted to us as originals, the conformity to
the authentic original documents of all documents submitted to us as copies or
forms, the genuineness of all signatures and the legal capacity of all natural
persons, and (ii) that the foregoing documents, in the forms thereof submitted
to us for our review, have not been and will not be altered or amended in any
respect material to our opinion as expressed herein. Except as stated above, we
have not reviewed any document for purposes of rendering our opinion as
expressed herein and we assume there exists no provision of any such other
document that bears upon or is inconsistent with our opinion as expressed
herein. In addition, we have conducted no independent factual investigation of
our own, but rather have relied solely upon the foregoing documents, the
statements and information set forth therein and the additional matters recited
or assumed herein, all of which we assume to be true, complete and accurate in
all material respects.
In addition to the foregoing, we have assumed for purposes of our opinion
as stated herein the following matters:
(i) that the Merger Agreement was duly authorized, executed and
delivered by each party thereto, and is a legal, valid and binding obligation of
each of the parties thereto, enforceable against each of them in accordance with
its terms; and
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(ii) that the shares of Durwood, Inc. to be converted in the
Merger will, immediately prior to the Effective Time, be validly issued, fully
paid and nonassessable.
Based upon and subject to the foregoing, and subject to the assumptions,
exceptions, qualifications and limitations stated herein, it is our opinion
that, when issued pursuant to and in accordance with the Merger Agreement, the
Shares will be legally issued, fully paid and nonassessable.
The foregoing opinion is limited to the laws of the State of Delaware, and
we have not considered and express no opinion on the effect of any other laws or
the laws of any other state or jurisdiction, including federal laws regulating
securities or other federal laws, or the rules and regulations of stock
exchanges or of any other regulatory body.
The opinion expressed herein is solely for your benefit in connection with
the matters described herein and may not be relied upon by any other person, or
for any other purpose, without our prior written consent. We hereby consent to
the filing of this opinion as an exhibit to the Registration Statement and to
all references made to this firm in such Registration Statement. In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act or the rules and
regulations thereunder.
Very truly yours,
/s/ Richards, Layton & Finger
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June 16, 1997
AMC Entertainment Inc.
Special Board Committee
106 West 14th Street
Kansas City, Missouri 64141-6615
Durwood, Inc.
106 West 14th Street
Kansas City, Missouri 64141-6615
Dear Sirs:
You have requested our opinion concerning the qualification of the
merger described below as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986 (the "Code") and the related
matters referred to below.
For the purposes of rendering this opinion, we have reviewed the
following documents:
1. Stipulation and Agreement of Compromise and Settlement, dated
October 10, 1996, providing for the settlement of the civil action IN RE
AMC SHAREHOLDER
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LITIGATION (Consolidated Civil Action No. 12855), in the Court of Chancery
of the State of Delaware in and for New Castle County (the "Derivative
Action Settlement Agreement");
2. Durwood Family Settlement Agreement, entered into as of January
22, 1996, by and among Stanley H. Durwood, individually, as Trustee of the
Durwood, Inc. Voting Trust dated December 12, 1992, as amended and as
Trustee of the Stanley H. Durwood Trust Agreement dated August 14, 1989, as
amended (the "SHD Trust"), Carol H. Journagan, Edward D. Durwood, Thomas A.
Durwood, Elissa D. Grodin, Brian H. Durwood and Peter J. Durwood;
3. Agreement and Plan of Merger, made as of March 31, 1997, between
Durwood, Inc., a Missouri corporation, and AMC Entertainment, Inc., a
Delaware corporation ("AMCE") (the "Merger Agreement");
4. The Restated and Amended Certificate of Incorporation of AMCE;
5. Stock Agreement between AMCE and the persons who are parties to
the Durwood Family Settlement Agreement and Delta Properties, Inc., which
is attached as Exhibit B to the Merger Agreement (the "Stock Agreement");
6. Registration Agreement between AMCE and the persons who are
parties to the Durwood Family Settlement Agreement and Delta Properties,
Inc., which is attached as Exhibit C to the Merger Agreement (the
"Registration Agreement");
7. Indemnification Agreement between AMCE and the persons who are
parties to the Durwood Family Settlement Agreement and Delta Properties,
Inc., which is attached as Exhibit D to the Merger Agreement (the
"Indemnification Agreement");
8. DI-Premerger Action Plan attached as Exhibit A to the Merger
Agreement; and
9. The Proxy - Information Statement/Prospectus of AMC Entertainment
Inc. and Durwood, Inc. relating to the merger (the "Proxy Statement")
included in the S-4 Registration Statement (File No. 333-25755) filed by AMCE
(the "Registration Statement").
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With your permission, we have not made any further investigation of
the facts relating to the proposed merger. Based on our review of the documents
listed above, our understanding of the facts is set forth below.
FACTS
Durwood, Inc., a Missouri corporation, has issued and outstanding
120,000 shares of Class A Stock (the "DI Class A Stock") and 40,784 shares of
Class B Stock (the "DI Class B Stock"). The DI Class A Stock is entitled to
preferred dividends and has a preference in liquidation of the corporation. The
DI Class B Stock is entitled to a participation in dividends while the preferred
dividends on the DI Class A Stock are being paid, and is entitled to all
dividend distributions after the preferred dividends on the DI Class A Stock
have been satisfied. Each share of DI Class A Stock and DI Class B Stock is
entitled to one vote.
The DI Class A Stock is owned entirely by the SHD Trust,(1) except for
500 shares which are owned by Harvard
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(1) The registered owner of these shares of DI Class A Stock is actually
Stanley H. Durwood, as trustee of the 1992 Durwood Voting Trust (the
"Voting Trust"). All of the voting trust certificates issued by the
Voting Trust, representing beneficial ownership of the shares of DI Class A
Stock held by the Voting Trust, are held by the SHD Trust.
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College. All of the DI Class B Stock is currently owned by American Associated
Enterprises, a Missouri limited partnership ("AAE"). The partners of AAE are
the following:
The SHD Trust
Carol H. Journagan
Edward D. Durwood
Thomas A. Durwood
Elissa D. Grodin
Brian H. Durwood
Peter J. Durwood
Durwood, Inc. has four wholly-owned subsidiaries: Crosstown
Development, Inc., Kansas City Downtown Redevelopment Corporation, Delta
Properties, Inc. and Entertainment Properties, Inc. Each of these corporations
is incorporated in Missouri and has a single class of common stock outstanding.
In addition to the four subsidiaries described above, Durwood, Inc.
owns shares of AMCE. AMCE has outstanding approximately 6,549,489 shares of
Common Stock and 11,157,000 shares of Class B Stock. The dividend and
liquidation rights of each of such classes of stock are identical. Class B
Stock generally is entitled as a class to elect 75% of the board of directors
and to vote as a class with holders of the Common Stock on other matters, with
each share of Class B Stock being entitled to ten votes per share and each share
of Common Stock being entitled to one vote per share. Holders of the Common
Stock generally are entitled to
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elect 25% of the board of directors. All of the Class B Stock is owned by
Durwood, Inc., and 2,641,951 shares of Common Stock are also owned by Durwood,
Inc. The remaining shares of AMCE Common Stock are owned by the public. Each
share of AMCE Class B Stock is convertible at the option of the holder into one
share of AMCE Common Stock. AMCE also has outstanding 3,323,600 shares of $1.75
Cumulative Convertible Preferred Stock, which is owned by the public.
During 1993, two derivative actions (the "Delaware Actions") were
instituted in the Court of Chancery of the State of Delaware by stockholders of
AMCE alleging gross mismanagement, various breaches of fiduciary duty, waste of
assets and constructive fraud in connection with, among other things, certain
services provided by AAE to AMCE and other transactions involving affiliates of
AMCE. Among the defendants named in these actions were Stanley H. Durwood and
Edward D. Durwood, who are members of the Durwood family who served as members
of the Board of Directors of AMCE.
Pursuant to the Derivative Action Settlement Agreement, the Durwood
Family Settlement Agreement, the Merger Agreement, the Stock Agreement, the
Registration Agreement and the Indemnification Agreement, the following
transactions are proposed to occur:
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1. AAE will be liquidated, and the partners of AAE will receive as
liquidating distributions DI Class B Stock as follows:
Partner No. of Shares
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SHD Trust 4,818.4664
Carol H. Journagan 5,994.2556
Edward D. Durwood 5,994.2556
Thomas A. Durwood 5,994.2556
Elissa D. Grodin 5,994.2556
Brian H. Durwood 5,994.2556
Peter J. Durwood 5,994.2556
2. Contemporaneously with or prior to the transaction described in
Step 1 above, Crosstown Development, Inc., Kansas City Downtown Redevelopment
Corporation and Entertainment Properties, Inc. will each be merged into Delta
Properties, Inc., with Durwood, Inc. retaining 100% ownership of the stock of
the surviving entity. In addition, Durwood, Inc. will transfer to Delta
Properties, Inc. all of its assets other than the shares it holds in AMCE, and
Delta Properties, Inc. will, in connection with that transfer, assume certain of
the liabilities of Durwood, Inc. Following these transactions, all of the
outstanding stock of Delta Properties, Inc. will be distributed by Durwood, Inc.
to its stockholders. Each stockholder of Durwood, Inc. will receive a number of
shares of Delta Properties, Inc. that is in the same proportion to the total
shares of Delta Properties, Inc. to be distributed as the number of AMCE shares
issued to such
<PAGE>
-7-
stockholder in the AMCE Merger (described below) bears to the total number of
AMCE shares issued to all Durwood, Inc. stockholders in the AMCE Merger.
3. Durwood, Inc. will convert 6,141,343 shares of AMCE Class B Stock
into an equal number of shares of AMCE Common Stock.
4. Durwood, Inc. will then merge with and into AMCE in a statutory
merger pursuant to the corporation laws of Missouri and Delaware, with AMCE
being the surviving corporation (the "AMCE Merger"). In the merger, the stock
of AMCE held by Durwood, Inc. will be cancelled and AMCE will issue to each of
the stockholders of Durwood, Inc. the number of shares of AMCE Stock set forth
below:
Durwood, Inc. No. of Shares
Shareholder of AMCE Stock
------------- -------------
AMCE Class B Stock:
SHD Trust 5,015,657
AMCE Common Stock:
Carol H. Journagan 1,461,203
Edward D. Durwood 1,461,203
Thomas A. Durwood 1,461,203
Elissa D. Grodin 1,461,203
Brian H. Durwood 1,461,203
Peter J. Durwood 1,461,203
Harvard College 16,071
Fractional shares will not be issued. But for this restriction, each
of the Durwood, Inc. Common Shareholders listed above (other than Harvard
College) would receive an
<PAGE>
-8-
additional 5/6th of a share of AMCE Common Stock. In lieu thereof, AMCE will
pay cash to each such Durwood, Inc. Common Shareholder of an amount equal to
5/6ths of the average of the high and low trading prices for AMCE Common Stock
on the trading day immediately preceding the Effective Time (as defined below).
5. Of the 13,798,946 shares of AMCE Class B Stock and Common Stock
to be issued in the AMCE Merger, 3,000,000 shares of AMCE Common Stock are
expected to be sold pursuant to an underwritten secondary offering of such
shares. 2,500,000 of such shares will be sold by the shareholders other than
Harvard College and the SHD Trust, and 500,000 will be sold by the SHD Trust.
It is anticipated that this offering will occur within 12 months of the closing
of the AMCE Merger. The shareholders may at their option increase the number of
shares sold in the secondary offering so long as the number sold does not exceed
5,000,000 shares. In addition, members of the Durwood family may make gifts to
charitable organizations or trusts of shares issued in the AMCE Merger. The
shareholders have agreed that for a period ending 3 years after the date of the
merger they will not sell shares of AMCE in a transaction exempt from the
registration requirements of the Securities Act of 1933 (other than in broker's
transactions), unless AMCE is first given the
<PAGE>
-9-
opportunity to purchase all of the shares sold at the same price.
In addition, pursuant to a procedure set forth in the Derivative
Action Settlement Agreement, two new independent directors have been elected to
the board of AMCE. Following the completion of all of the transactions
described above, all claims against the defendants in the Delaware Actions will
be released.
In the Stock Agreement, each stockholder of Durwood, Inc. represents
and warrants to AMCE that there is no plan or intention, and as of the effective
time of the merger of Durwood, Inc. into AMCE under the Merger Agreement (the
"Effective Time") there will be no plan or intention, by such stockholder to
sell, exchange or otherwise dispose of a number of shares of Common Stock or
Class B Stock received in the AMCE Merger that would reduce the aggregate
ownership by such stockholder of Common Stock or Class B Stock, as the case may
be, received in the AMCE Merger to a number of shares equal to less than 50% of
the total number of shares of Common Stock or Class B Stock, as the case may be,
received by such stockholder in the AMCE Merger. Moreover, each such
stockholder covenants that for a period of two years from the Effective Time of
the AMCE Merger, he, she or it will not sell, exchange or otherwise dispose of a
number of shares of
<PAGE>
-10-
Common Stock or Class B Stock received in the AMCE Merger that would reduce the
aggregate ownership by such stockholder of Common Stock or Class B Stock, as the
case may be, received in the AMCE Merger to a number of shares less than 50% of
the total number of shares of Common Stock or Class B Stock, as the case may be,
received by such stockholder in the AMCE Merger(2). In the case of the SHD
Trust,the minimum number of shares that must be retained is increased by an
amount equal to the sum of (x) 65% of the number of shares of AMCE Common Stock
received by Harvard College in the AMCE Merger, plus (y) the Specified
Percentage (as defined below) of the total number of shares of AMCE Common Stock
and Class B Stock issued in the AMCE Merger.
In the Indemnification Agreement, each stockholder of Durwood, Inc.
agrees to provide AMCE with the information relating to such stockholder
necessary to complete the
- --------------------------
(2) This 50% limitation may be exceeded by a DI stockholder owning AMCE
Common Stock if another DI stockholder agrees by written instrument
reasonably satisfactory to AMCE to reduce the number of shares of Common
Stock such other stockholder is permitted to sell by a like number of
shares and all other stockholders consent in writing thereto. This
exception to the 50% limitation does not apply to the AMCE Class B Stock
issued in the AMCE Merger.
<PAGE>
-11-
registration statement and proxy statement to be filed with the Securities
Exchange Commission with respect to the AMCE Merger, and agrees to indemnify
AMCE for damages arising from any untrue statement or any material omission that
was made in reliance upon the information so provided. Stanley Durwood and the
SHD Trust agree to provide AMCE with the information relating to Durwood, Inc.
and its subsidiaries (other than AMCE) and AAE necessary to complete the
registration statement and proxy statement to be filed with the Securities
Exchange Commission with respect to the AMCE Merger, and agree to indemnify AMCE
for damages arising from any untrue statement or any material omission that was
made in reliance upon the information so provided. In addition, Stanley Durwood
and the SHD Trust agree to indemnify AMCE for damages arising from any breach of
representation or warranty contained in the Merger Agreement and for losses
resulting from any liabilities or obligations of Durwood, Inc.
Each stockholder of Durwood, Inc. agrees to place 50% of the shares
received in the AMCE Merger in escrow for a period of approximately two years
following the Effective Time. In the case of the SHD Trust, this amount is
increased by an amount equal to the sum of (x) 65% of the number of shares of
AMCE Common Stock received by Harvard College in the AMCE Merger, plus (y) the
Specified Percentage (as defined
<PAGE>
-12-
below) of the total number of shares of AMCE Common Stock and Class B Stock
issued in the AMCE Merger.
Certain of the obligations of Stanley Durwood and the SHD Trust (the
"SHD Indemnitors") to make payments under the Indemnification Agreement, as well
as certain of their obligations under the Stock Agreement and the Registration
Agreement, are net of any tax benefit AMCE realizes as a result of the
utilization of Durwood, Inc.'s alternative minimum tax credit carryovers for
federal income tax purposes and net operating loss carryovers for Missouri
income tax purposes. If at the end of the escrow period (I.E., the March 31
following the second anniversary of the closing of the AMCE Merger) such a tax
benefit has been realized by AMCE and not offset against indemnification
obligations, then the amount of such benefit (hereafter a "Credit Amount") shall
be paid to the SHD Indemnitors. In addition, if such benefits are realized
after the escrow period, the Credit Amount related thereto shall also be paid to
the SHD Indemnitors. The "Specified Percentage" means a percentage equal to the
product of (A) a fraction determined by dividing (x) the parties' estimate of
the value of the tax benefits described above, by (y) the value of all AMCE
shares issued in the AMCE Merger plus the value determined in clause (x), times
(B) 1.25.
<PAGE>
-13-
The Board of Directors of AMCE appointed a Special Committee composed
of two directors who are neither members of the Durwood family nor employees of
AMCE to consider and review the proposed merger, negotiate its terms and make a
recommendation thereon. The management of AMCE has represented to us that the
Special Committee determined that the AMCE Merger will serve the valid business
purposes of AMCE, since it simplifies the corporate structure of AMCE, increases
the voting interests of unaffiliated stockholders of AMCE, and is a necessary
step toward the underwritten secondary offering, which will benefit AMCE by
increasing the float and liquidity of the AMCE Common Stock. We also note that
the Merger was part of preliminary discussions relating to the settlement of
derivative litigation initiated by certain shareholders of AMCE addressed to the
conduct of Durwood, Inc., AAE and members of the Durwood family, among others,
with respect to the business affairs of AMCE. This settlement is the subject of
the Derivative Action Settlement Agreement, which was executed on October 10,
1996, after the negotiation of the terms of the Merger were substantially
completed and the Special Committee had substantially concluded its analysis of
the benefits of the AMCE Merger to the Company. The Derivative Action
Settlement Agreement is conditioned on the consummation of the AMCE Merger.
<PAGE>
-14-
We also understand that if the AMCE Merger is consummated, AMCE will
bear 50% of its own expenses in the AMCE Merger, with the other 50% being paid
by Stanley Durwood, the SHD Trust and Delta Properties, Inc. If the AMCE Merger
is consummated, but the underwritten secondary offering is not consummated,
Stanley Durwood, the SHD Trust and Delta Properties, Inc. will pay all of AMCE's
expenses in the AMCE Merger, and will make a $2 million payment to AMCE. AMCE
will not bear any expenses of Durwood, Inc.
We have assumed that all of the Agreements referred to above will be
duly executed and performed in accordance with their terms and that the AMCE
Merger will be carried out in accordance with the terms of the Agreement and
Plan of Merger referred to above.
Based upon the foregoing, it is our opinion that for federal income
tax purposes:
1. Durwood, Inc. will recognize no taxable income, gain or loss upon
its conversion of 6,141,343 shares of AMCE Class B Stock into shares of
AMCE Common Stock;
2. AMCE will recognize no taxable income, gain or loss with respect
to its issuance of shares of AMCE Common Stock upon such conversion;
<PAGE>
-15-
3. the AMCE Merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code;
4. Durwood, Inc. and AMCE will be parties to the reorganization
effected by the AMCE Merger;
5. except as specified in 8 below, no taxable income, gain or loss
will be recognized to Durwood, Inc., AMCE, the shareholders of AMCE or the
shareholders of Durwood, Inc. as the result of the AMCE Merger, except to
the extent of any cash received by the SHD Trust in respect of Credit
Amounts pursuant to the Indemnification Agreement, which will be treated as
"boot" taxable to the SHD Trust under Section 356 of the Code;
6. the tax basis of the shares of AMCE Common Stock and AMCE Class B
Stock received in the AMCE Merger by a shareholder of Durwood, Inc. will be
equal to the tax basis of the Durwood, Inc. shares exchanged therefor;
7. the holding period for the shares of AMCE Common Stock and Class
B Stock received in the AMCE Merger by a shareholder of Durwood, Inc. will
include the holding period of the shares of Durwood, Inc. exchanged in the
AMCE Merger; and
8. shareholders of Durwood, Inc. who receive cash with respect to
fractional shares will be treated as
<PAGE>
-16-
having received such fractional shares pursuant to the Merger and then
as having sold those fractional shares in the market for cash. Such
shareholders will recognize gain or loss with respect to such fractional
shares in an amount equal to the difference between the tax basis allocated
to such fractional shares (as determined under 6 above) and the cash
received in respect thereof.
We point out that, on December 13, 1994, the Internal Revenue Service
(the "Service") announced that it is studying the tax treatment of transactions
similar to the AMCE Merger. To date, the Service has not issued any
regulations, rulings or other pronouncements as a result of this study.
However, this may result in the issuance of regulations, rulings or other
pronouncements by the Service which, if applied retroactively, would alter the
opinion expressed herein.
We have assisted in the preparation of the section headed "Certain
Federal Income Tax Consequences" in the Proxy Statement. We are of the opinion
that the material Federal income tax consequences of the AMCE Merger are as set
forth in such section, subject to the qualifications stated therein.
We disclaim any opinion on any other matter. This opinion is intended
solely for the use of AMCE and Durwood,
<PAGE>
-17-
Inc. and may not be furnished to any other person or entity without our express
prior written consent.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to all references made to this firm in such
Registration Statement. In giving such consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7
of the Securities Act or the rules and regulations thereunder.
This opinion is based upon the Code, its legislative history, existing
and proposed regulations thereunder, published rulings, pronouncements and court
decisions, all as in effect as of the date hereof and all subject to change.
Very truly yours,
/s/ CHADBOURNE & PARKE LLP
<PAGE>
Exhibit 11
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
YEAR (53 WEEKS) ENDED APRIL 3, 1997 AND
YEARS (52 WEEKS) ENDED MARCH 28, 1996 AND MARCH 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings before extraordinary item $ 18,995 $ 27,371 $ 33,978
Extraordinary item - (19,350) -
-------- -------- --------
Net earnings 18,995 8,021 33,978
Preferred dividends (5,907) (7,000) (7,000)
-------- -------- --------
Net earnings for common shares $ 13,088 $ 1,021 $ 26,978
-------- -------- --------
-------- -------- --------
Average shares for primary earnings per share:
Weighted average number of shares outstanding 17,489 16,513 16,456
Stock options and other dilutive items 237 282 137
-------- -------- --------
Total shares outstanding 17,726 16,795 16,593
-------- -------- --------
-------- -------- --------
Primary earnings per share before extraordinary item $ .74 $ 1.21 $ 1.63
-------- -------- --------
-------- -------- --------
Primary earnings per share $ .74 $ .06 $ 1.63
-------- -------- --------
-------- -------- --------
FULLY DILUTED EARNINGS PER SHARE:
Net earnings before extraordinary item $ 18,995 $ 27,371 $ 33,978
Extraordinary item - (19,350) -
-------- -------- --------
Net earnings 18,995 8,021 33,978
Preferred dividends (5,907) (7,000) n/a
-------- -------- --------
Net earnings for common shares $ 13,088 $ 1,021 $ 33,978
-------- -------- --------
-------- -------- --------
Average shares for fully diluted earnings per share:
Weighted average number of shares outstanding 17,489 16,513 16,456
Stock options and other dilutive items 451 518 157
Shares issuable upon conversion of preferred stock n/a n/a 6,896
-------- -------- --------
Total shares outstanding 17,940 17,031 23,509
-------- -------- --------
-------- -------- --------
Fully diluted earnings per share
before extraordinary item $ .73(1) $ 1.20(1) $ 1.45(2)
-------- -------- --------
-------- -------- --------
Fully diluted earnings per share $ .73(1) $ 0.06(1) $ 1.45(2)
-------- -------- --------
-------- -------- --------
</TABLE>
(1) Fully diluted earnings per share for 1997 and 1996 excludes conversion of
preferred stock.
(2) Fully diluted earnings per share for 1995 includes conversion of preferred
stock.
<PAGE>
EXHIBIT 11. (Continued)
AMC ENTERTAINMENT INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
Thirty-nine
Weeks Ended
December 26, December 28,
1996 1995
---- ----
PRIMARY EARNINGS PER SHARE
Net earnings before extraordinary item $ 10,811 $ 20,348
Extraordinary item - (19,350)
-------- --------
Net earnings 10,811 998
Preferred dividends (4,454) (5,250)
-------- --------
Net earnings (loss) for common shares $ 6,357 $ (4,252)
-------- --------
-------- --------
Average shares for primary earnings per share:
Weighted average number of shares outstanding 17,410 16,509
Stock options whose effect is dilutive 249 286
-------- --------
Total shares outstanding 17,659 16,795
-------- --------
-------- --------
Primary earnings per share before extraordinary item $ .36 $ .90
-------- --------
-------- --------
Primary earnings (loss) per share $ .36 $ (.25)
-------- --------
-------- --------
FULLY DILUTED EARNINGS PER SHARE
Net earnings before extraordinary item $ 10,811 $ 20,348
Extraordinary item - (19,350)
-------- --------
Net earnings 10,811 998
Preferred dividends (4,454) (5,250)
-------- -------
Net earnings (loss) for common shares $ 6,357 $ (4,252)
-------- --------
Average shares for fully diluted earnings per share:
Weighted average number of shares outstanding 17,410 16,509
Stock options and awards whose effect is dilutive 451 413
Shares issuable upon conversion of preferred stock N/A N/A
-------- --------
Total shares outstanding 17,861 16,922
-------- --------
-------- --------
Fully diluted earnings per share before
extraordinary item $ .36(1) $ .89(1)
-------- --------
-------- --------
Fully diluted earnings (loss) per share $ .36(1) (.25)(1)
-------- --------
-------- --------
(1) Shares from conversion of preferred stock are excluded from the fully
diluted earnings per share calculation because they are anti-dilutive.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this amendment to the registration statement
on Form S-4 of our report dated May 16, 1997, on our audits of the financial
statements of AMC Entertainment Inc. and subsidiaries as of April 3, 1997 and
March 28, 1996, and the year (53 weeks) ended April 3, 1997 and the years (52
weeks) ended March 28, 1996 and March 30, 1995. We also consent to the
incorporation by reference in this registration statement on Form S-4 of AMC
Entertainment Inc. and subsidiaries of our report dated May 17, 1996 on our
audits of the financial statements and financial statement schedules of AMC
Entertainment Inc. as of March 28, 1996 and March 30, 1995 and for the years
(52 weeks) ended March 28, 1996, March 30, 1995 and March 31, 1994 which
report is incorporated in this Form S-4 and AMC Entertainment Inc.'s Annual
Report in Form 10-K for the year ended March 28, 1996. We also consent to
the reference to our Firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P
Kansas City, Missouri
June 17, 1997
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this amendment to the registration statement
on Form S-4 of our report dated May 22, 1997, on our audits of the financial
statements of Durwood, Inc. and subsidiaries. We also consent to the
reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P
Kansas City, Missouri
June 17, 1997
<PAGE>
[LETTERHEAD]
CONSENT
We consent to the reference to our firm in the letter to stockholders and
under the headings "Summary - The Merger - Opinion of Financial Advisor", "The
Merger - Background of Merger - Initial Actions by The Special Committee", "The
Merger - Reports of Advisors", "The Merger - Reasons for Recommendations" and
"Fairness Opinion of Furman Selz" in this registration statement of AMC
Entertainment Inc. on Form S-4.
In giving such consent, we do not concede that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, and the rules and regulations thereunder.
FURMAN SELZ LLC
By: /s/ David S. Harris
-----------------------------
Managing Director
Dated: June 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Financial Statements of AMC Entertainment Inc. and Subsidiaries as
of and for the fifty-three weeks ended April 3, 1997, submitted in response to
the requirements to Form S-4 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-03-1997
<PERIOD-START> MAR-29-1996
<PERIOD-END> APR-03-1997
<CASH> 24,715
<SECURITIES> 0
<RECEIVABLES> 42,892
<ALLOWANCES> 704
<INVENTORY> 0
<CURRENT-ASSETS> 83,672
<PP&E> 823,899
<DEPRECIATION> 280,841
<TOTAL-ASSETS> 718,213
<CURRENT-LIABILITIES> 134,267
<BONDS> 370,283
0
2,202
<COMMON> 11,841
<OTHER-SE> 155,969
<TOTAL-LIABILITY-AND-EQUITY> 718,213
<SALES> 225,167
<TOTAL-REVENUES> 749,597
<CGS> 36,748
<TOTAL-COSTS> 580,002
<OTHER-EXPENSES> 59,803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,022
<INCOME-PRETAX> 31,895
<INCOME-TAX> 12,900
<INCOME-CONTINUING> 18,995
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,995
<EPS-PRIMARY> 0.74
<EPS-DILUTED> 0.73
</TABLE>
<PAGE>
EXHIBIT 99
AMC ENTERTAINMENT INC.
106 West 14th Street - Kansas City, Missouri 64105
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Messrs. Stanley H. Durwood and Peter C. Brown,
jointly and severally, as Proxies, each with the power to appoint his
substitute, and hereby authorizes them to represent and vote, as designated
below, all of the Common Stock of AMC Entertainment Inc. which the undersigned
is entitled to vote at the Special Meeting of Stockholders to be held on
July 29, 1997 and at any adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
1. PROPOSAL to approve Agreement and Plan of Merger and Reorganization dated
as of March 31, 1977 between AMC Entertainment Inc. and Durwood, Inc. set
forth as Annex 1 to the accompanying Proxy Statement.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1.
Please date and sign exactly as name appears. When
shares are held by joint tenants, both must sign.
When signing as an attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
Date__________________________________________, 1997
Signature___________________________________________
Signature (if held jointly)_________________________
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
2
